CFDP Revision Date
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.
Bonatti, Alessandro and Hörner, Johannes, "Career Concerns and Market Structure" (2011). Cowles Foundation Discussion Papers. 2188.