COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1831 Career Concerns with Coarse Information Alessandro Bonatti and Johannes Hörner October 2011 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. |
