Abstract:When agents face a risk of termination by the principal in the short term, they may underinvest in projects whose results would be realized only in the long term. We use data on decisions made by NBA coaches to study how risk of termination by the principal affects the behavior of agents. Because letting a rookie play produces long-term benefits on which coaches with a shorter investment horizon might place lower weight, we hypothesize that higher termination risk might lead to lower rookie participation. Cons… Show more
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