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Learning by Choosing: Career Concerns with Observable Actions

Author

Listed:
  • T. Tony Ke
  • Christopher Li
  • Mikhail Safronov

Abstract

This paper explores potential inefficiencies of incomplete contracts in a dynamic career concerns context. In a firm-worker relationship, the worker performs public tasks that have trade-offs between productivity and informativeness. We show that the first-best outcome can be obtained with short-term contracts if the wage can depend on the task choice. This provides an explanation for wage jumps at promotions—the worker is assigned the more productive but less informative task after promotion. If task choice is not contractible, then inefficiency arises: the worker has an endogenous bias toward informativeness, while the firm is biased toward productivity.

Suggested Citation

  • T. Tony Ke & Christopher Li & Mikhail Safronov, 2023. "Learning by Choosing: Career Concerns with Observable Actions," American Economic Journal: Microeconomics, American Economic Association, vol. 15(2), pages 536-567, May.
    • Handle: RePEc:aea:aejmic:v:15:y:2023:i:2:p:536-67
    DOI: 10.1257/mic.20200192
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    More about this item

    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
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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