Working paper

Career Concerns with Exponential Learning

Alessandro Bonatti, and Johannes Hörner

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 codes

  • D82: Asymmetric and Private Information • Mechanism Design
  • D83: Search • Learning • Information and Knowledge • Communication • Belief
  • M52: Compensation and Compensation Methods and Their Effects

Replaced by

Alessandro Bonatti, and Johannes Hörner, “Career Concerns with Exponential Learning”, Theoretical Economics, vol. 12, n. 1, 2017, pp. 425–475.

Reference

Alessandro Bonatti, and Johannes Hörner, “Career Concerns with Exponential Learning”, TSE Working Paper, n. 17-793, March 2017.

See also

Published in

TSE Working Paper, n. 17-793, March 2017