Which Kind of Transparency and When? Career Concerns, and Incentives for Acquiring Expertise

Abstract

An agent can exert effort to improve the quality of a signal that also depends on his ability. The signal will help him to choose an action, which, in turn will lead to some observable good or bad outcome. Transparency on actions can distort the agent's choices towards actions (which a more able agent is more likely to receive), regardless of the signal. When smart actions produce no further information, thus concealing any further signals of ability, this dampens the agent's incentives to exert effort. In contrast, revealing smart actions can boost effort. Thus, this paper provides a more nuanced view on the costs and benefits of transparency and delegation. Further, the model brings together two approaches to career concerns (the ability- and expertise-based approaches) and highlights that the two can act in concert or in opposition.