Learning by Choosing: Career Concerns with Observable Actions

51 Pages Posted: 20 Apr 2020 Last revised: 11 Aug 2022

See all articles by T. Tony Ke

T. Tony Ke

The Chinese University of Hong Kong (CUHK)

Christopher Li

Vanderbilt University

Mikhail Safronov

University of Cambridge - Faculty of Economics

Date Written: March 14, 2020

Abstract

This paper explores potential inefficiencies of incomplete contracts in a dynamic career concerns context. In a firm--worker relationship, the worker performs tasks that have tradeoffs between productivity and informativeness. There is no private cost to the worker for choosing any of the tasks and all actions are observable. 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 choosing the less productive but more informative task, while the firm is biased toward choosing the more productive but less informative task.

Suggested Citation

Ke, Tony and Li, Christopher and Safronov, Mikhail, Learning by Choosing: Career Concerns with Observable Actions (March 14, 2020). Available at SSRN: https://ssrn.com/abstract=3554456 or http://dx.doi.org/10.2139/ssrn.3554456

Tony Ke (Contact Author)

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

Christopher Li

Vanderbilt University ( email )

Nashville, TN 37235
United States

HOME PAGE: http://christopherli.net

Mikhail Safronov

University of Cambridge - Faculty of Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

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