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Sustaining implicit contracts when agents have career concerns: the role of information disclosure

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  • Arijit Mukherjee

Abstract

Firms often augment career concerns incentives with implicit incentive contracts. I formalize the interaction between these two incentives, and highlight its implications on a firm's decision to disclose its workers' productivity information. Disclosure enhances career concerns but inhibits implicit contracts. I show two main results. First, implicit contracts weaken (i.e., substitute) career concerns if the prior belief about the worker's ability is low, and vice versa. Second, when these incentives are substitutes, the optimal disclosure policy follows a cutoff rule: patient firms are opaque, and transparent firms never offer implicit contracts. These results need not hold if the incentives are complements.

Suggested Citation

  • Arijit Mukherjee, 2008. "Sustaining implicit contracts when agents have career concerns: the role of information disclosure," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 469-490, June.
    • Handle: RePEc:bla:randje:v:39:y:2008:i:2:p:469-490
    DOI: 10.1111/j.0741-6261.2008.00023.x
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    Cited by:

    1. Koch Alexander K & Morgenstern Albrecht, 2010. "Coordination under the Shadow of Career Concerns," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-40, March.
    2. Hakenes, Hendrik & Katolnik, Svetlana, 2017. "On the incentive effects of job rotation," European Economic Review, Elsevier, vol. 98(C), pages 424-441.
    3. Braz Camargo & Elena Pastorino, 2016. "Learning-by-Employing: The Value of Commitment under Uncertainty," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 581-620.
    4. Evangelia Chalioti, 2015. "Team Production, Endogenous Learning about Abilities and Career Concerns," Cowles Foundation Discussion Papers 2020, Cowles Foundation for Research in Economics, Yale University.
    5. Wolitzky Alexander, 2012. "Career Concerns and Performance Reporting in Optimal Incentive Contracts," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-32, February.
    6. Ekinci, Emre, 2022. "Employee entrepreneurship and signaling role of corporate venturing decisions," Labour Economics, Elsevier, vol. 79(C).
    7. Arijit Mukherjee, 2010. "The optimal disclosure policy when firms offer implicit contracts," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 549-573, September.
    8. Kim, Doyoung, 2017. "Motivating for new changes when agents have reputation concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 37-53.
    9. Smolin, Alex & Doval, Laura, 2021. "Information Payoffs: An Interim Perspective," CEPR Discussion Papers 16543, C.E.P.R. Discussion Papers.
    10. Hwang, Sun Joo, 2016. "A Signaling Theory of Education under the Presence of Career Concerns," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 38(2), pages 87-101.
    11. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    12. Günter Strobl & Edward D. Van Wesep, 2013. "Publicizing Performance," Management Science, INFORMS, vol. 59(4), pages 918-932, April.
    13. Laura Doval & Alex Smolin, 2024. "Persuasion and Welfare," Journal of Political Economy, University of Chicago Press, vol. 132(7), pages 2451-2487.

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