Belief Precision and Effort Incentives in Promotion Contests

21 Pages Posted: 16 Apr 2011 Last revised: 24 Dec 2012

Jeanine Miklós-Thal

University of Rochester - Simon Business School

Hannes Ullrich

University of Zurich - Faculty of Economics, Business Administration and Information Technology; German Institute for Economic Research (DIW Berlin) - Innovation, Management, Service

Date Written: December 23, 2012

Abstract

The career concerns literature predicts that incentives for effort decline as beliefs about ability become more precise (Holmström, 1982/1999). In contrast, we show that effort can increase with belief precision if promotions to better-paid jobs make the returns to reputation non-linear. In this case, an intermediate level of precision provides the strongest incentive for effort, with effort increasing (decreasing) when beliefs are less (more) precise.

Keywords: incentives, reputation, promotion contests, career concerns

JEL Classification: J3, M51, M52, M54

Suggested Citation

Miklós-Thal, Jeanine and Ullrich, Hannes, Belief Precision and Effort Incentives in Promotion Contests (December 23, 2012). Available at SSRN: https://ssrn.com/abstract=1809128 or http://dx.doi.org/10.2139/ssrn.1809128

Jeanine Miklós-Thal (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Hannes Ullrich

University of Zurich - Faculty of Economics, Business Administration and Information Technology ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland

German Institute for Economic Research (DIW Berlin) - Innovation, Management, Service ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+493089789521 (Phone)

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