Mixed up? That's good for motivation
An essential ingredient in models of career concerns is ex ante uncertainty about an agent’s type. This paper shows how career concerns can arise even in the absence of any such ex ante uncertainty, if the unobservable actions that an agent takes influence his future productivity. By implementing effort in mixed strategies the principal can endogenously induce uncertainty about the agent’s ex post productivity and generate reputational incentives. Our main result is that creating such ambiguity can be optimal for the principal, even though this exposes the agent to additional risk and reduces output. This finding demonstrates the importance of mixed strategies in contracting environments with imperfect commitment, which contrasts with standard agency models where implementing mixed strategy actions typically is not optimal if pure strategies are also implementable.
|Date of creation:||Sep 2004|
|Date of revision:||Sep 2004|
|Contact details of provider:|| Postal: |
Phone: +44 1784-414228
Fax: +44 1784-439534
Web page: http://www.rhul.ac.uk/economics/
|Order Information:|| Postal: Egham Hill, Egham, Surrey, TW20 0EX, UK.|
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.:
- Meyer, Margaret A & Vickers, John, 1995.
"Performance Comparisons and Dynamic Incentives,"
CEPR Discussion Papers
1107, C.E.P.R. Discussion Papers.
- Emmanuelle Auriol & Guido Friebel & Lambros Pechlivanos, 2002. "Career Concerns in Teams," Journal of Labor Economics, University of Chicago Press, vol. 20(2), pages 289-307, Part.
- B. Douglas Bernheim & Michael D. Whinston, 1997.
"Incomplete Contracts and Strategic Ambiguity,"
Harvard Institute of Economic Research Working Papers
1787, Harvard - Institute of Economic Research.
- Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999.
"The economics of career concerns: part 1 :comparing information structures,"
ULB Institutional Repository
2013/9617, ULB -- Universite Libre de Bruxelles.
- Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 1999. "The Economics of Career Concerns, Part I: Comparing Information Structures," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 183-98, January.
- Fahad Khalil, 1997. "Auditing Without Commitment," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 629-640, Winter.
- Jean-Jacques Laffont & Jean Tirole, 1985.
"The Dynamics of Incentive Contracts,"
397, Massachusetts Institute of Technology (MIT), Department of Economics.
- Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-98, July.
- John Fingleton, 2005. "Career Concerns of Bargainers," Journal of Law, Economics and Organization, Oxford University Press, vol. 21(1), pages 179-204, April.
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
- Koessler, Frederic, 2004. "Strategic knowledge sharing in Bayesian games," Games and Economic Behavior, Elsevier, vol. 48(2), pages 292-320, August.
- Fudenberg, Drew & Tirole, Jean, 1990.
"Moral Hazard and Renegotiation in Agency Contracts,"
Econometric Society, vol. 58(6), pages 1279-1319, November.
- Drew Fudenberg & Jean Tirole, 1988. "Moral Hazard and Renegotiation in Agency Contracts," Working papers 494, Massachusetts Institute of Technology (MIT), Department of Economics.
- Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
- Shin Hyun Song, 1994. "The Burden of Proof in a Game of Persuasion," Journal of Economic Theory, Elsevier, vol. 64(1), pages 253-264, October.
- Cremer, Jacques, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 275-95, May.
- Borland, Jeff, 1992. " Career Concerns: Incentives and Endogenous Learning in Labour Markets," Journal of Economic Surveys, Wiley Blackwell, vol. 6(3), pages 251-70.
When requesting a correction, please mention this item's handle: RePEc:hol:holodi:0422. 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: (Claire Blackman)The email address of this maintainer does not seem to be valid anymore. Please ask Claire Blackman to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.