Career Concerns and Belief Precision about Talent

Abstract

In this paper, we study effort incentives in the labor market when talent is learned over time. We build a career concerns model in which agents can be promoted. We show that effort can increase in the precision of beliefs about talent, unlike the result obtained in the seminal paper of HolmstrA¶m (1999), but in line with MiklA³s-Thal and Ullrich (2015). Characterizing the impact of belief precision on incentives through the wage function allows us to identify a “front-runner†effect. Agents who will be promoted if they keep their reputation are more likely than others to exert more effort when belief precision is higher. This is in contrast to MiklA³s-Thal and Ullrich (2015) who find a symmetric relation around the threshold for being promoted.