Career Concerns with Coarse Information

94 Pages Posted: 29 Oct 2011 Last revised: 26 Jan 2012

See all articles by Alessandro Bonatti

Alessandro Bonatti

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Johannes Horner

Yale University - Cowles Foundation

Date Written: January 26, 2012

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.

Keywords: Career concerns, Experimentation, Career paths, Up-or-out, Reputation

JEL Classification: D82, D83, M52

Suggested Citation

Bonatti, Alessandro and Horner, Johannes, Career Concerns with Coarse Information (January 26, 2012). Cowles Foundation Discussion Paper No. 1831, Available at SSRN: https://ssrn.com/abstract=1950722

Alessandro Bonatti

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Johannes Horner (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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