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Reputation and Career Concerns

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  • Leonardo Martinez

Abstract

This paper studies Holmstrom's [1999] seminal model of career concerns, but considers that a small change in the beliefs about the agent's future productivity may imply a large change in his compensation---because, for example, the agent may be fired or promoted. This allows us to study how the agent's effort decision depends on his current reputation---with reputation we refer to the beliefs about the agent's future productivity. We shall show that the market's and the agent's problems can be written recursively. We find that the relationship between the agent's decisions and his current reputation is typically nonmonotonic: equilibrium effort is hump-shaped over reputation. Furthermore, equilibrium effort may be higher if there is less dispersion in the distribution of abilities; it may be higher later in the agent's career; and it may be higher than the efficient effort level

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File URL: http://repec.org/sed2006/up.20379.1140058910.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 853.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:853

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Keywords: career concerns; reputation; agency; learning; dynamic games; promotions; firing;

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  1. Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November.
  2. Ehtisham Ahmad & Leonardo Martinez, 2004. "On the Design and Effectiveness of Targeted Expenditure Programs," IMF Working Papers 04/220, International Monetary Fund.
  3. Khorana, Ajay, 1996. "Top management turnover An empirical investigation of mutual fund managers," Journal of Financial Economics, Elsevier, vol. 40(3), pages 403-427, March.
  4. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
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Cited by:
  1. Braz Camargo, 2011. "Career Concerns: A Human Capital Perspective," 2011 Meeting Papers 1274, Society for Economic Dynamics.
  2. Stephen Eliot Hansen, 2010. "The Benefits of Limited Feedback in Organizations," Working Papers 490, Barcelona Graduate School of Economics.
  3. Heski Bar-Isaac & Juanjo Ganuza, 2005. "Teaching to the top and searching for superstars," Working Papers 05-06, New York University, Leonard N. Stern School of Business, Department of Economics.
  4. Andrew Foerster & Leonardo Martinez, 2006. "Are we working too hard or should we be working harder? A simple model of career concerns," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 79-91.

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