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Career Concerns and Excessive Risk Taking

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  • Ying Chen

Abstract

type="main"> In a seminal paper, Holmström ( ) shows that an agent who is unsure of her ability and has a payoff linear in her reputation underinvests in risky projects. I show that if the agent privately knows her ability, then the opposite must happen, that is, she always overinvests in risky projects, no matter what the curvature of her payoff in reputation. Moreover, if project quality is verifiable and the agent is uninformed about her ability, then she reveals project quality and first best is attained; but if she privately knows her ability, first best is not attainable and she still overinvests.

Suggested Citation

  • Ying Chen, 2015. "Career Concerns and Excessive Risk Taking," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(1), pages 110-130, March.
  • Handle: RePEc:bla:jemstr:v:24:y:2015:i:1:p:110-130
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    File URL: http://hdl.handle.net/10.1111/jems.12085
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    Cited by:

    1. repec:oup:restud:v:85:y:2018:i:3:p:1471-1501. is not listed on IDEAS
    2. Elchanan Ben-Porath & Eddie Dekel & Barton L Lipman, 2018. "Disclosure and Choice," Review of Economic Studies, Oxford University Press, vol. 85(3), pages 1471-1501.
    3. Elisabeth Schulte & Mike Felgenhauer, 2017. "Preselection and expert advice," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(3), pages 693-714, August.
    4. Andreu, Laura & Pütz, Alexander, 2016. "Choosing two business degrees versus choosing one: What does it tell about mutual fund managers' investment behavior?," CFR Working Papers 12-01 [rev.2], University of Cologne, Centre for Financial Research (CFR).
    5. repec:eee:jbrese:v:95:y:2019:i:c:p:357-375 is not listed on IDEAS
    6. repec:eee:jeborg:v:137:y:2017:i:c:p:37-53 is not listed on IDEAS
    7. Rohan DUTTA & Pierre-Yves YANNI, 2017. "On Inducing Agents with Term Limits to Take Appropriate Risk," Cahiers de recherche 06-2017, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    8. Andreu, Laura & Puetz, Alexander, 2017. "Choosing two business degrees versus choosing one: What does it tell about mutual fund managers' investment behavior?," Journal of Business Research, Elsevier, vol. 75(C), pages 138-146.

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