Working Papers

2006

 

January 2006, No. 06-1R

Reputation, Career Concerns, and Job Assignments (Revised Apr. 2009)

Leonardo Martinez

Does a worker who had a successful career have stronger or weaker incentives to manipulate his reputation than a worker who performed poorly? This paper presents a tractable model that allows us to study career concerns when the strength of a worker’s incentives depends on his employment history (the history of his past actions, jobs, and performances). More specifically, the paper incorporates standard job assignments into the main model in Holmstrom’s (1999) seminal paper on career concerns. Equilibrium wages, equilibrium job assignments, and the strength of career-concern incentives are the same for all employment histories that lead to the same worker's reputation. (With reputation we refer to beliefs about the worker's future productivity.) We show that, typically, workers with a better reputation have stronger incentives than workers with a worse reputation. Furthermore, we show that when the strength of incentives depends on employment history, (i) a ratchet effect may appear, (ii) in spite of this ratchet effect, incentives may be stronger, and (iii) incentives may be stronger when beliefs about ability are more precise.



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