Career Concerns and Belief Precision about Talent

Loss, Frédéric; Renucci, Antoine

doi:10.15609/annaeconstat2009.139.0087

Cited by 2 publications

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“…Second, we examine variations in the precision of the shock that affects output. This complements the analyses that study the precision of reputation (Loss & Renucci, 2020a; Martinez, 2009; Miklos‐Thal & Ullrich, 2015). Analyses differ because higher reputation precision and a higher precision of the shock have an opposite impact on the extent of learning but a similar impact on the wage received when promoted.…”

Section: Introductionmentioning

confidence: 65%

“…In the following, we focus on a representative agent and a representative firm. We build on Loss and Renucci's (2020a) model of promotion.…”

Section: The Modelmentioning

confidence: 99%

“…Jobs have two dimensions, which departs from Loss and Renucci (2020a). First, the agent selects a project.…”

Section: The Modelmentioning

confidence: 99%

“…77Miklos‐Thal and Ullrich (2015), and Loss and Renucci (2020a), show that effort can increase in belief precision about ability. This is not the flip side of the result we obtain here.…”

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confidence: 99%

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Promotions, managerial project choice, and implementation effort

Loss

Renucci

2021

Economics Manag Strategy

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In our model where career concerns take the form of promotion, managers use projects and effort to influence the labor market beliefs regarding their ability.We show that managers consider how projects affect the extent to which posterior beliefs can differ from initial beliefs, the precision of posterior beliefs, and equilibrium implementation effort costs. The following results obtain.Although projects differ only in terms of the information they reveal, equilibrium implementation effort costs can reverse project choices. More informative projects can induce lower effort despite the learning effect identified by Holmströmm's paper (1999). Regardless of the attractiveness of promotion, equilibrium effort is insufficient at either end of the reputation distribution.Finally, good (respectively, bad) reputation managers sometimes choose the more informative (respectively, less informative) project. | INTRODUCTIONWhy do some managers venture into uncharted territory, for example, tap new markets, launch new products while others stick to the existing ones? Why do managers sometimes volunteer to take on trendy projects that put their ability in the spotlight but prefer discretion at other times? Under what circumstances are they more diligent? How does the prospect of a promotion influence their choice? These are some of the questions that this paper raises.In the modern corporation, firm owners delegate the delicate task of selecting and implementing projects to managers. Conflicts arise as stakeholders' interests are not necessarily aligned. Firm owners are primarily concerned with their financial return. Workers on the payroll mainly care for job security. Suppliers are concerned about solvency. And managers care for their reputation, that is, the perceived value of their ability, as a better reputation improves their career prospects (e.g., their chances of promotion, internally or externally). It is therefore important for all stakeholders to understand the implicit incentives facing managers in charge of project selection and implementation. So far, the career concerns literature has been helpless in this regard, paying little attention to the interaction between project choice and implementation effort. 1 An example is the separate treatment of effort and project selection by Holmström (1999). This is unfortunate because in practice implementation is viewed by industry specialists (e.g., consulting firms such as McKinsey or PwC's Strategy&) as being as critical to firm success as the choice of a strategy.The model we use to study this issue works as follows. A firm hires a risk-neutral agent to select one of two projects and exert effort to implement the project selected. The agent's output is the sum of the agent's ability and implementation effort, and of the shock that depends on the project selected. The shock that affects one project is a meanpreserving spread of the shock that affects the other project. All labor market participants (including the agent) share the same prior beliefs about the agent's abi...

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Section: Introductionmentioning

confidence: 65%

“…In the following, we focus on a representative agent and a representative firm. We build on Loss and Renucci's (2020a) model of promotion.…”

Section: The Modelmentioning

confidence: 99%