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Career Concerns with Coarse Information

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Abstract
This paper develops a model of career concerns. The worker's skill is revealed through output, wage is based on expected output, and so on assessed ability. Specifically, effort increases the probability that a skilled worker achieves a one-time breakthrough. Effort levels at different times are strategic substitutes. Equilibrium effort (and, if marginal cost is convex, wage) is single-peaked with seniority. The agent works too little, too late. Both delay and underprovision of effort worsen if effort is observable. If the firm commits to wages but faces competition, the optimal contract features piecewise constant wages as well as severance pay.

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  • Alessandro Bonatti & Johannes Horner, 2011. "Career Concerns with Coarse Information," Cowles Foundation Discussion Papers 1831, Cowles Foundation for Research in Economics, Yale University, revised Jan 2012.
    • Handle: RePEc:cwl:cwldpp:1831
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    More about this item

    Keywords

    Career concerns; Experimentation; Career paths; Up-or-out; Reputation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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