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Ambition and Talent

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  • Botond Koszegi

    ()
    (Department of Economics, University of California, Berkeley)

  • Wei Li

    ()
    (Massachusetts Institute of Technology)

Abstract

We develop a career concerns model in which agents differ in taste for income in addition to ability, and derive basic implications of this framework. We argue that the model captures important aspects of ambition. Since ambitious agents are expected to work harder – and therefore be paid more – than unambitious ones, everyone might be induced to work hard to prove that they are ambitious. On the other hand, proving one’s ambition can be detrimental, because past outputs will be taken by the principal to reflect lower ability. Thus, “ambition-proving incentives” are likely to increase effort early in the career and decrease it later. Over a long horizon, ambition-proving incentives have a tendency to bootstrap themselves, and, if this effect is strong enough, to create significant incentives with little else motivating the agent. Finally, we discuss in detail two consequences of our framework for organizational design. To maximize effort, the principal wants to cater incentives to the best-performing employees, and wants to observe a measure of the agent’s effort (say, his hours) early, but not late, in the career.

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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0214.

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Length: 53 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:has:discpr:0214

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  1. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-48, June.
  2. Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June.
  3. Claudia Goldin, 1985. "Monitoring Costs and Occupational Segregation by Sex: An Historical Analysis," NBER Working Papers 1560, National Bureau of Economic Research, Inc.
  4. Jeremy I. Bulow & Lawrence H. Summers, 1985. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment," NBER Working Papers 1666, National Bureau of Economic Research, Inc.
  5. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The economics of career concerns: part 1 :comparing information structures," ULB Institutional Repository 2013/9617, ULB -- Universite Libre de Bruxelles.
  6. Kuhn, Peter, 1993. "Demographic groups and personnel policy," Labour Economics, Elsevier, vol. 1(1), pages 49-70, June.
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  8. Sanders Korenman & David Neumark, 1991. "Does Marriage Really Make Men More Productive?," Journal of Human Resources, University of Wisconsin Press, vol. 26(2), pages 282-307.
  9. Marco Ottaviani & Peter Sorensen, 1999. "Professional Advice," Game Theory and Information 9906003, EconWPA.
  10. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
  11. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
  12. Eng Seng Loh, 1996. "Productivity Differences and the Marriage Wage Premium for White Males," Journal of Human Resources, University of Wisconsin Press, vol. 31(3), pages 566-589.
  13. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  14. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-34, December.
  15. Meyer, Margaret A & Vickers, John, 1997. "Performance Comparisons and Dynamic Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 547-81, June.
  16. Aron, Debra J, 1987. "Worker Reputation and Productivity Incentives," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages S87-106, October.
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