Three essays on career concerns

Remmy, Kevin Klaus (2017). Three essays on career concerns. (Dissertation, Universität Bern, Wirtschafts- und Sozialwissenschaftliche Fakultät)

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This dissertation consists of three essays dealing with the concept of career concerns. Exhibiting the desire to be perceived favorably by others is at the core of this concept. For over three decades researchers have been investigating this concept in theory and in practice. This thesis contributes to the theoretical strand of literature with three models. While each essay highlights a different organizational issue, the common ground of all three is the relationship between a principal (she) and a career concerned agent (he).

Essay 1 studies the effect of career concerns with respect to one of the fundamental organizational questions arising naturally in business: how should a job consisting of two sequential tasks be allocated among the employees? Should the same agent be in charge (integration), or should different agents be in charge (separation)? We find a well-known rent-saving effect favoring integration and a novel shirking effect favoring separation. This shirking effect is purely due to the career concerns of the agent. A project, which is always successful might undermine the contribution of the agent in charge. The agent then has an incentive to shirk in one stage of the project, just to show that the project’s success is due to the agent’s contribution. In case of separation, the agent has one task only to signal his ability, and hence is well incentivized.

Essay 2 considers an agent who serves as an expert. He investigates the circumstances for an investment. Depending on the underlying state of the world, a risky or a safe project should be executed. His career concerns, contrary to the ones in Essay 1, target at the correctness of his evaluation. We examine the role of information an outside party has access to as an incentive instrument for a career concerned expert. Two distinguished degrees of information are considered, intransparency and transparency. The latter allows the market to have access to additional relevant information with respect to the agent’s evaluation. Making an organization transparent comes at a cost, but nevertheless we find instances where transparency is optimal due to the expert’s career concerns. His incentives are increased once the market has superior inference capability, i.e. once the organization is made transparent.

Finally, Essay 3 examines the interplay between explicit and implicit incentives of a career concerned agent. Akin to Essay 2 the agent is modeled as an expert who investigates the nature of a project whose outcome depends on the underlying state of the world. While the modeling of the career concerns is similar to Essay 2, the focus is different. This time the principal has two instruments at hand to incentivize the career concerned agent, namely offering a bonus contingent on a well performed project and secondly, a double-check after a rejected project. The latter generates the information about the correctness of the agent’s decision. We find that the principal prefers to offer a bonus if the prior probability of implementing correctly is sufficiently low. The use of double-checks is preferred, otherwise.

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