Career Concerns and Market Structure

68 Pages Posted: 6 Oct 2013

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: September 24, 2013

Abstract

This paper analyzes the impact of market structure on career concerns. Effort increases the probability that a skilled agent achieves a one-time breakthrough. Wages are based on assessed ability and on expected output. For any wage, the agent works too little, too late. Under short-term contracts, effort and wages are single-peaked with seniority, due to the strategic substitutability of effort levels at different times. Both delay and underprovision of effort worsen if effort is observable. Commitment to wages by competing firms mitigates these inefficiencies. In that case, the optimal contract features piecewise constant wages and 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 and Market Structure (September 24, 2013). Cowles Foundation Discussion Paper No. 1831R, Available at SSRN: https://ssrn.com/abstract=2334347 or http://dx.doi.org/10.2139/ssrn.2334347

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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