Optimal Job Design and Career Dynamics in the Presence of Uncertainty
The paper studies a learning model in which information about a worker's ability can be acquired symmetrically by the worker and a firm in any period by observing the worker's performance on a given task. Productivity at different tasks is assumed to be differentially sensitive to a worker's intrinsic talent: potentially more profitable tasks entail the risk of greater output destruction if the worker assigned to them is not of the ability required. We characterize the (essentially unique) optimal retention, task assignment and promotion policy for the class of sequential equilibria of this game, by showing that the equilibria of interest are strategically equivalent to the solution of an experimentation problem (a discounted multi-armed bandit with independent and dependent arms). These equilibria are all ex ante efficient but involve ex post inefficient task allocation and separation. While the ex post inefficiency of separations persists even as the time horizon becomes arbitrarily large, in the limit task assignment is efficient. When ability consists of multiple skills, low performing promoted workers are fired rather than demoted, if outcomes at lower level tasks, compared to those at higher level tasks, provide a sufficiently accurate measure of ability. We then examine the strategic effects of the dynamics of learning on a worker's career profile. We prove, in particular, that price competition among firms causes ex ante inefficient turnover and task assignment, independently of the degree of transferability of human capital. In a class of equilibria of interest it generates a wage dynamics consistent with properties observed in the data
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- Banks, Jeffrey S & Sundaram, Rangarajan K, 1992.
Econometric Society, vol. 60(5), pages 1071-1096, September.
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- George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 881-919.
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- Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
- Luis Araujo & Braz Camargo, 2005. "Monetary Equilibrium with Decentralized Trade and Learning," UWO Department of Economics Working Papers 20051, University of Western Ontario, Department of Economics.
- Araújo, Luís & Camargo, Bráz Ministério de, 2010. "Monetary equilibrium with decentralized trade and learning," Textos para discussão 222, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
- Davis, Steven J., 1997. "Sorting, learning, and mobility when jobs have scarcity value : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 327-337, June.
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- Harris, Milton & Weiss, Yoram, 1984. "Job Matching with Finite Horizon and Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 92(4), pages 758-779, August.
- Bergemann, Dirk & Valimaki, Juuso, 1996. "Learning and Strategic Pricing," Econometrica, Econometric Society, vol. 64(5), pages 1125-1149, September.
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- Robert Gibbons & Michael Waldman, 1999. "A Theory of Wage and Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1321-1358.
- Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
- Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I. Full references (including those not matched with items on IDEAS)
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