Drive and Talent

Journal of European Economic Association (2008), 210–236

28 Pages Posted: 15 Dec 2006 Last revised: 20 Nov 2019

See all articles by Botond Koszegi

Botond Koszegi

Central European University (CEU) - Department of Economics

Wei Li

Vancouver School of Economics, University of British Columbia

Date Written: 2006

Abstract

We analyze ways in which heterogeneity in responsiveness to incentives (drive) affects employees' incentives and firms' incentive systems in a career concerns model. On the one hand, since more driven agents work harder in response to existing incentives than less driven ones - and therefore pay is increasing in perceived drive - there is a motive to increase effort to signal high drive. These drive-signaling incentives are strongest with intermediate levels of existing incentives. On the other hand, because past output of a more driven agent will seem to the principal to reflect lower ability, there is an incentive to decrease effort to signal low drive. The former effect dominates early in the career, and the latter effect dominates towards the end. To maximize incentives, the principal wants to observe a noisy measure of the agent's effort - such as the number of hours he works - early but not late in his career.

Keywords: career concerns, responsiveness to incentives, organizational design

JEL Classification: C70, D82, D23

Suggested Citation

Koszegi, Botond and Li, Wei, Drive and Talent (2006). Journal of European Economic Association (2008), 210–236, Available at SSRN: https://ssrn.com/abstract=951801 or http://dx.doi.org/10.2139/ssrn.951801

Botond Koszegi

Central European University (CEU) - Department of Economics ( email )

Nador u. 9.
Budapest H-1051
Hungary

Wei Li (Contact Author)

Vancouver School of Economics, University of British Columbia ( email )

6000 Iona Drive
Vancouver, BC V6T 1L4
Canada
604-822-2839 (Phone)

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