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| Author: | Koszegi, B. Li, W. |
| Title: | Drive and talent |
| Journal: | Journal of the European Economic Association
2008 : MAR, VOL. 6:1, p. 210-236 |
| Index terms: | incentives careers |
| Language: | eng |
| Abstract: | This paper analyzes ways in which heterogeneity in responsiveness to incentives affects employees' incentives and firms' incentive systems in a career concerns model. There is a motive to increase effort to signal high drive because more driven agents work harder in response to existing incentives than less driven ones and therefore pay is increasing in perceived drive. These "drive-signaling incentives" are strongest with intermediate levels of existing incentives. On the other hand, there is an incentive to decrease effort to signal low drive because past output of a more driven agent will seem to the principal to reflect lower ability. The former effect dominates early in the career whereas the latter effect dominates towards the end. The principal wants to observe a noisy measure of the agent's effort early in his career to maximize incentives. |
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