Belief Precision and Effort Incentives in Promotion Contests
21 Pages Posted: 16 Apr 2011 Last revised: 24 Dec 2012
Date Written: December 23, 2012
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: Suggested Citation