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Experimenting with Career Concerns

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  • Halac, Marina
  • Kremer, Ilan

Abstract

A manager who learns privately about a project over time may want to delay quitting it if recognizing failure/lack of success hurts his reputation. In the banking industry, managers may want to roll over bad loans. How do distortions depend on expected project quality? What are the effects of releasing public information about quality? A key feature of banks is that they learn about project quality from bad news, i.e. a default. We show that in such an environment, distortions tend to increase with expected quality and imperfect information about quality. Results differ if managers instead learn from good news.

Suggested Citation

  • Halac, Marina & Kremer, Ilan, 2018. "Experimenting with Career Concerns," CEPR Discussion Papers 12569, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12569
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    Cited by:

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    4. Khalil, Fahad & Lawarree, Jacques & Rodivilov, Alexander, 2020. "Learning from failures: Optimal contracts for experimentation and production," Journal of Economic Theory, Elsevier, vol. 190(C).
    5. Chia-Hui Chen & Junichiro Ishida & Wing Suen, 2021. "Reputation Concerns in Risky Experimentation [Reputation and Survival: Learning in a Dynamic Signalling Model]," Journal of the European Economic Association, European Economic Association, vol. 19(4), pages 1981-2021.
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    7. Thomas, Caroline, 2019. "Experimentation with reputation concerns – Dynamic signalling with changing types," Journal of Economic Theory, Elsevier, vol. 179(C), pages 366-415.
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    More about this item

    Keywords

    Strategic experimentation; Dynamic games; Private learning; Banks; Bad loans; Career concerns;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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