Career Concerns with Cost Uncertainty (job market paper)
I consider a continuous time career concerns model. As in Holmström (1982/99), there is symmetric uncertainty about a worker's ability. In addition, the worker has private information about her conscientiousness (cost of effort). The sequence of observed outputs allows learning about both attributes of the worker. As in the career concerns literature, incentives to exert effort are driven in part by a signal-jamming motive, i.e., the desire to manipulate the market's beliefs about the worker's ability. In line with prior results, this motive is present throughout the worker's lifetime, but its impact on the worker's effort gradually decreases over time as the market learns the worker's ability. In contrast, the motive to signal conscientiousness is more nuanced and changes sign as time progresses. I find that early in her career, cost uncertainty pushes the agent to work harder to signal that she is conscientious. During her middle and late career, the agent has an incentive to signal that she is lazy. In the second phase of her career, the agent lowers her effort to seem lazy. During her late career, the agent, surprisingly, increases her effort in order to convince the market of her laziness. This result, in which the impact of cost uncertainty on effort choice changes sign twice is used to explain the patterns of residuals in the relation between earnings and work experience specified in Mincer (1974) and noted in Murphy & Welch (1990).
Why have some monarchies transitioned toward democratic reform while others have sustained without much change? We consider a society with a monarch, a bourgeoisie, and a nobility. A transition toward democratization takes agenda-setting power away from the monarch and provides it to the bourgeoisie and nobility. We argue that such transitions could be the result of a rational farsighted monarch giving away power in order to prevent coalitional cooperation by the nobility and bourgeoisie. We consider an infinitely repeated legislative bargaining model in which three agents split a dollar in each period. The status quo evolves endogenously over time, as agents can approve new proposals by a majority of two votes. One agent, the monarch, has veto power and must approve any proposal that alters the status quo. Our key parameter of interest is the monarch's agenda-setting power, de ned as the probability that she is randomly selected as the proposer in a given period. We characterize a symmetric Markov Perfect Equilibrium for all possible primitives (i.e. the initial status quo, the discount factor, and agenda-setting power). We find that for any interior initial allocation, there exists a level of patience such that beyond a threshold agenda-setting power, the nobility and bourgeoisie have incentives to work together. They work against each other if the monarch has lower agenda-setting power. When the two non-veto players work together, they can sustain positive allocations asymptotically. If the monarch starts out with a high agenda-setting power, she would prefer to reduce her own power, thereby preempting any cooperation among the two non-veto players. We see this as voluntary democratization. We also find that if there is high inequality in the status quo, or if the monarch already has a high proportion of the total surplus in the status quo, then there is no need for the monarch to initiate democratization. The Markov perfect equilibrium that we find is unique after applying a coalitional stability refinement. We also confirm that the equilibrium structure is robust to having an arbitrary odd number of players.
Learning, Making, and Selling
I consider an environment with two players, an Incumbent and an Entrant vying to sell to a continuum of consumers distributed over an n-dimensional space. A location on the n-dimensional space denotes a particular realization of the vector of n attributes that define a product, the location of a consumer denotes her preference. As the title suggests, there are three stages in any period – Learning, Making, and Selling. In the learning stage, both players must optimally acquire information about consumer locations across the n dimensions. While the incumbent’s product is assumed to be fixed, the entrant is free to choose a product design. A valence advantage for the incumbent drives horizontal product differentiation. There are no prices in this model, which makes it more suited to markets where customers are not charged a price such as websites, mobile applications, or politics. An alternate interpretation is that this model speaks to the decisions faced by the product design vertical of a firm, and not sales. I find that the optimal product design chosen by the entrant is characterized by just-enough differentiation and selective differentiation. Crucially, I show that the returns to research are initially convex, and must be eventually concave. Therefore, step-wise specialization is optimal in this environment.
Agenda Setting Power versus Coalitional Power: A Lab Experiment