Career Concerns and Performance Reporting in Optimal Incentive Contracts
In many contracting settings incentives are provided not only through transfers but also through performance reports to prospective employers. This paper studies a principal-agent model of this kind, in which the principal sends a non-verifiable report of output to a competitive labor market interested in the agent's ability. It is assumed that the principal and agent write an enforceable contract over both payments and reports as a function of output, and that the contract terms they agree to cannot be observed by the market. When contracts are unrestricted, reports cannot affect the agent's future wage in equilibrium, because the agent will always pay the principal to give a good report. Under limited liability, reports can affect future wages, but only by designating output as "good" or "bad." This informative performance reporting benefits the principal, and may more than make up for the costs imposed by limited liability. The possibilities that the market may have some direct information about output, that the principal may have additional information about the agent's ability, and that the principal may have psychological or reputational costs of misreporting output are also considered.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 12 (2012)
Issue (Month): 1 (February)
|Contact details of provider:|| Web page: https://www.degruyter.com|
|Order Information:||Web: https://www.degruyter.com/view/j/bejte|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Patrick Bolton & Mathias Dewatripont, 2005.
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262025760.
- Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
- Calzolari, Giacomo & Pavan, Alessandro, 2006.
"On the optimality of privacy in sequential contracting,"
Journal of Economic Theory,
Elsevier, vol. 130(1), pages 168-204, September.
- Alessandro Pavan, 2004. "On the Optimality of Privacy in Sequential Contracting," Theory workshop papers 658612000000000067, UCLA Department of Economics.
- Giacomo Calzolari & Alessandro Pavan, 2005. "On the Optimality of Privacy in Sequential Contracting," Discussion Papers 1404, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Giacomo Calzolari & Alessandro Pavan, 2004. "On the Optimality of Privacy in Sequential Contracting," Discussion Papers 1394, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Faure-Grimaud, Antoine & Laffont, Jean-Jacques & Martimort, David, 2003.
"Collusion, Delegation and Supervision with Soft Information,"
IDEI Working Papers
167, Institut d'Économie Industrielle (IDEI), Toulouse.
- Antoine Faure-Grimaud & Jean-Jacques Laffont & David Martimort, 2003. "Collusion, Delegation and Supervision with Soft Information," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 253-279.
- Laffont, Jean-Jacques & Martimort, David, 1995.
"Collusion and Delegation,"
IDEI Working Papers
54, Institut d'Économie Industrielle (IDEI), Toulouse.
- Eloïc Peyrache & Lucía Quesada, 2011. "Intermediaries, Credibility and Incentives to Collude," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 1099-1133, December.
- Jewitt, Ian & Kadan, Ohad & Swinkels, Jeroen M., 2008. "Moral hazard with bounded payments," Journal of Economic Theory, Elsevier, vol. 143(1), pages 59-82, November.
- Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
- Chrysanthos Dellarocas & Charles A. Wood, 2008. "The Sound of Silence in Online Feedback: Estimating Trading Risks in the Presence of Reporting Bias," Management Science, INFORMS, vol. 54(3), pages 460-476, March.
- Eloïc Peyrache & Lucia Quesada, 2011. "Intermediaries, Credibility and Incentives to Collude," Post-Print hal-00637997, HAL.
- George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1125-1156.
- Laffont, Jean-Jacques & Martimort, David, 1998.
"Mechanism Design with Collusion and Correlation,"
IDEI Working Papers
81, Institut d'Économie Industrielle (IDEI), Toulouse.
- Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-991, September.
- Sherstyuk, Katerina, 2000. " Performance Standards and Incentive Pay in Agency Contracts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 725-736, December.
When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:12:y:2012:i:1:n:6. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.