Theory Work

Too Talented for the Market: Firm Budget Constraints in a Career Concerns Setting

This paper extends Holmström’s (1999) canonical career concerns model to study how contract length and compensation adjust when competitive firms face per-period labor budget constraints. For very high-skill agents, long-term contracts arise in equilibrium as agents prefer to secure compensation rather than risk short-term performance shocks that affect perceived ability. A similar logic applies to agents whose expected output lies just below the budget constraint. The model contributes to the career concerns literature and offers insight into the structure of MLB contracts.

Public Shocks and Private Effort: A Career Concerns Perspective

This paper examines how public shocks to firm value influence wage contracts and effort in a dynamic career concerns framework. Building on the Holmström (1999) model, we introduce firm-specific demand shocks that are publicly observable prior to contracting. In this environment, competing firms make wage offers to a single agent, and we characterize the resulting equilibrium contracts under full transparency. Our results show that even without changes to the agent's ability, the introduction of publicly known firm shocks significantly alters the structure of optimal short-term and long-term contracts. We derive conditions under which long-term contracts emerge in equilibrium, highlighting the strategic advantage of transparency in shaping both firm profits and agent utility.

Contracting for Dangerous Professions: Risk Stemming in a Career Concerns Setting with Firm Tied Productivity Shocks

This paper studies contracting problems that arise when effort increases production today at the expense of an increased risk of losing the ability to work in the future. When firms are symmetrical, agents with high expected ability prefer long-term contracts and choose to work cautiously (limit risk). Agents with low precieved ability opt to engage in dangerous effort as the career concerns motive outweighs the increased risk of effort. When firms are asymmetric, there exists a region of perceived ability where agents accept a short-term deal and engage in dangerous effort. In all other regions, long-term contracting is optimal.

Hiding Your Advantage: Asymmetric Firm Productivity and Contracting in a Career Concerns Setting

The Art of Early Extensions: A Career Concerns Perspective