Career Concerns and Market Structure
68 Pages Posted: 6 Oct 2013
Date Written: September 24, 2013
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: Suggested Citation