Intergenerational conflicts of interest and seniority systems in organizations

This paper studies the role of a proposed seniority system in an organization. The organization consists of at least three overlapping generations of short-lived members and chooses either a shortsighted or a farsighted action in each period. This results in intergenerational conflicts of interest. The old generation desires to obtain an immediate profit, while the middle and young generations have incentives to invest for future profits. We use a model of infinitely repeated games and demonstrate that the seniority system solves these conflicts in the sense that the farsighted action profile is sustainable in equilibrium.