Open AccessCareer concerns with exponential learning
Author(s) -
Bonatti Alessandro,
Hörner Johannes
Publication year - 2017
Publication title -
theoretical economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.404
H-Index - 32
eISSN - 1555-7561
pISSN - 1933-6837
DOI - 10.3982/te2115
Subject(s) - severance , seniority , wage , economics , microeconomics , labour economics , piecewise , constant (computer programming) , efficiency wage , strategic complements , computer science , mathematics , mathematical analysis , political science , law , programming language
This paper examines the interplay between career concerns and market structure. Ability and effort are complements: effort increases the probability that a skilled agent achieves a one‐time breakthrough. Wages are based on assessed ability and on expected output. Effort levels at different times are strategic substitutes and, as a result, the unique equilibrium effort and wage paths are single‐peaked with seniority. Moreover, for any wage profile, the agent works too little, too late. Commitment to wages by competing firms mitigates these inefficiencies. In that case, the optimal contract features piecewise constant wages and severance pay.