Journal Article

Managerial Incentive Problems: A Dynamic Perspective

Bengt Holmström

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 66, issue 1, pages 169-182
Published in print January 1999 | ISSN: 0034-6527
Published online January 1999 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00083
Managerial Incentive Problems: A Dynamic Perspective

Show Summary Details

Preview

The paper studies how a person's concern for a future career may influence his or her incentives to put in effort or make decisions on the job. In the model, the person's productive abilities are revealed over time through observations of performance. There are no explicit output-contingent contracts, but since the wage in each period is based on expected output and expected output depends on assessed ability, an “implicit contract” links today's performance to future wages. An incentive problem arises from the person's ability and desire to influence the learning process, and therefore the wage process, by taking unobserved actions that affect today's performance. The fundamental incongruity in preferences is between the individual's concern for human capital returns and the firm's concern for financial returns. The two need be only weakly related. It is shown that career motives can be beneficial as well as detrimental, depending on how well the two kinds of capital returns are aligned.

Journal Article.  0 words. 

Subjects: Economics

Full text: subscription required

How to subscribe Recommend to my Librarian

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.