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Experimenting with Career Concerns

Author

Listed:
  • Marina Halac
  • Ilan Kremer

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 managers 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

  • Marina Halac & Ilan Kremer, 2020. "Experimenting with Career Concerns," American Economic Journal: Microeconomics, American Economic Association, vol. 12(1), pages 260-288, February.
    • Handle: RePEc:aea:aejmic:v:12:y:2020:i:1:p:260-88
    DOI: 10.1257/mic.20170411
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    Cited by:

    1. Iván Marinovic & Martin Szydlowski, 2022. "Monitoring with career concerns," RAND Journal of Economics, RAND Corporation, vol. 53(2), pages 404-428, June.
    2. Chen, Wanyi, 2021. "Dynamic survival bias in optimal stopping problems," Journal of Economic Theory, Elsevier, vol. 196(C).
    3. Thomas, Caroline, 2019. "Experimentation with reputation concerns – Dynamic signalling with changing types," Journal of Economic Theory, Elsevier, vol. 179(C), pages 366-415.
    4. 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.
    5. Yunzhi Hu & Felipe Varas, 2021. "A Theory of Zombie Lending," Journal of Finance, American Finance Association, vol. 76(4), pages 1813-1867, August.
    6. Hu, Yunzhi, 2022. "A dynamic theory of bank lending, firm entry, and investment fluctuations," Journal of Economic Theory, Elsevier, vol. 204(C).
    7. Binswanger, Johannes & Oechslin, Manuel, 2020. "Better statistics, better economic policies?," European Economic Review, Elsevier, vol. 130(C).
    8. Khalil, Fahad & Lawarree, Jacques & Rodivilov, Alexander, 2020. "Learning from failures: Optimal contracts for experimentation and production," Journal of Economic Theory, Elsevier, vol. 190(C).
    9. Ivan Marinovic & Martin Szydlowski, 2019. "Monitor Reputation and Transparency," 2019 Meeting Papers 125, Society for Economic Dynamics.

    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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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