Learning by Choosing: Career Concerns with Observable Actions
- (pp. 536-67)
Abstract
This paper explores potential inefficiencies of incomplete contracts in a dynamic career concerns context. In a firm-worker relationship, the worker performs public tasks that have trade-offs between productivity and informativeness. We show that the first-best outcome can be obtained with short-term contracts if the wage can depend on the task choice. This provides an explanation for wage jumps at promotions—the worker is assigned the more productive but less informative task after promotion. If task choice is not contractible, then inefficiency arises: the worker has an endogenous bias toward informativeness, while the firm is biased toward productivity.Citation
Ke, T. Tony, Christopher Li, and Mikhail Safronov. 2023. "Learning by Choosing: Career Concerns with Observable Actions." American Economic Journal: Microeconomics, 15 (2): 536-67. DOI: 10.1257/mic.20200192Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D86 Economics of Contract: Theory
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials
- M51 Personnel Economics: Firm Employment Decisions; Promotions
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