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Career Concerns with Coarse Information

This paper develops a model of career concerns. The worker's skill is revealed through output, wage is based on expected output, and so on assessed ability. Specifically, effort increases the probability that a skilled worker achieves a one-time breakthrough. Effort levels at different times are strategic substitutes. Equilibrium effort (and, if marginal cost is convex, wage) is single-peaked with seniority. The agent works too little, too late. Both delay and underprovision of effort worsen if effort is observable. If the firm commits to wages but faces competition, the optimal contract features piecewise constant wages as well as severance pay.

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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1831.

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Length: 93 pages
Date of creation: Oct 2011
Date of revision: Jan 2012
Handle: RePEc:cwl:cwldpp:1831
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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Steven Tadelis & Jonathan Levin, 2004. "Profit Sharing and the Role of Professional Partnerships," 2004 Meeting Papers 156, Society for Economic Dynamics.
  2. Suman Ghosh & Michael Waldman, 2004. "Standard Promotion Practices vs Up-Or-Out Contracts," Royal Economic Society Annual Conference 2004 132, Royal Economic Society.
  3. Heski Bar-Isaac, 2003. "Reputation and Survival: Learning in a Dynamic Signalling Model," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 231-251.
  4. Alan Morrison & William J. Wilhelm, Jr., 2003. "Partnership Firms, Reputation and Human Capital," OFRC Working Papers Series 2003fe02, Oxford Financial Research Centre.
  5. Ulrich Hege & Dirk Bergemann, 2005. "The Financing of Innovation: Learning and Stopping," Post-Print hal-00459926, HAL.
  6. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 199-217.
  7. Simon Board & Moritz Meyer‐ter‐Vehn, 2013. "Reputation for Quality," Econometrica, Econometric Society, vol. 81(6), pages 2381-2462, November.
  8. Gibbons, R. & Murphy, K.J., 1990. "Optimal Incentive Contracts In The Presence Of Career Concerns: Theory And Evidence," Working papers 563, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Suman Ghosh & Michael Waldman, 2006. "Standard Promotion Practices Versus Up-Or-Out Contracts," Working Papers 06007, Department of Economics, College of Business, Florida Atlantic University.
  10. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-48, June.
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