Cancelled

We analyze a dynamic principal-agent problem where an infinitely-lived principal who can employ at most one agent faces a sequence of finitel-lived agents who differ in their ability to produce output. The ability of an agent is initially unknown to both him and the principal and agents can exert effort when employed, which makes their performance more informative about ability. We characterize equilibrium contracts and show that they display short-term commitment to employment when the effect of effort on output is persistent but delayed. By providing insurance against early termination, commitment encourages agents to exert effort, and thus improves on the principal's ability to identify their type. This helps explain the use of probationary appointments in environments in which there is uncertainty about the talent of workers.

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