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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. Copyright (c) 2008, RAND.

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.
  • Handle: RePEc:bla:randje:v:39:y:2008:i:2:p:469-490
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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. Arijit Mukherjee, 2010. "The optimal disclosure policy when firms offer implicit contracts," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 549-573.
    3. repec:eee:jeborg:v:137:y:2017:i:c:p:37-53 is not listed on IDEAS
    4. repec:eee:eecrev:v:98:y:2017:i:c:p:424-441 is not listed on IDEAS
    5. 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.
    6. 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.
    7. James M. Malcomson, 2012. "Relational Incentive Contracts," Introductory Chapters,in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics Princeton University Press.
    8. Braz Camargo & Elena Pastorino, 2012. "Learning-by-employing: the value of commitment under uncertainty," Staff Report 475, Federal Reserve Bank of Minneapolis.
    9. 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.

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