Publication Date: October 2011
Revision Date: January 2012
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.
Career concerns, Experimentation, Career paths, Up-or-out, Reputation
JEL Classification Codes: D82, D83, M52