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Career Concerns and Market Structure

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  • Alessandro Bonatti
  • Johannes Horner

Abstract

This paper analyzes the impact of market structure on career concerns. Effort increases the probability that a skilled agent achieves a one-time breakthrough. Wages are based on assessed ability and on expected output. For any wage, the agent works too little, too late. Under short-term contracts, effort and wages are single-peaked with seniority, due to the strategic substitutability of effort levels at different times. Both delay and underprovision of effort worsen if effort is observable. Commitment to wages by competing firms mitigates these inefficiencies. In that case, the optimal contract features piecewise constant wages and severance pay.
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Suggested Citation

  • Alessandro Bonatti & Johannes Horner, 2014. "Career Concerns and Market Structure," Levine's Working Paper Archive 786969000000000929, David K. Levine.
    • Handle: RePEc:cla:levarc:786969000000000929
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    References listed on IDEAS

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    Cited by:

    1. Jeanine Miklós-Thal & Hannes Ullrich, 2016. "Career Prospects and Effort Incentives: Evidence from Professional Soccer," Management Science, INFORMS, vol. 62(6), pages 1645-1667, June.
    2. Philippe Aghion & Matthew O. Jackson, 2016. "Inducing Leaders to Take Risky Decisions: Dismissal, Tenure, and Term Limits," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 1-38, August.
    3. Bonatti, Alessandro & Hörner, Johannes, 2017. "Career concerns with exponential learning," Theoretical Economics, Econometric Society, vol. 12(1), January.
    4. Chia-Hui Chen & Junichiro Ishida, 2015. "A Tenure-Clock Problem," ISER Discussion Paper 0919, Institute of Social and Economic Research, Osaka University.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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