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Incentives and Organizations

Paper Session

Sunday, Jan. 8, 2017 1:00 PM – 3:00 PM

Hyatt Regency Chicago, Field
Hosted By: Econometric Society
  • Chair: Simon Board, University of California-Los Angeles

Recruiting Talent

Simon Board
,
University of California-Los Angeles
Mortiz Meyer-ter-Vehn
,
University of California-Los Angeles
Tomasz Sadzik
,
University of California-Los Angeles

Abstract

We propose a model of firm dynamics in which a firm’s primary asset is the talent of its
workforce. Firms compete in wages to attract applicants, and managers seek to identify the most
talented. Over time, a firm’s quality evolves as today’s recruits become tomorrow’s managers. If
talent is scarce, firm-applicant matching is positive assortative, with better firms posting higher
wages and attracting better applicants. As a result, the economy converges to a steady state
featuring persistent dispersion in talent, wages and productivity. Along the path, if firms are
initially similar, then high-wage firms incur short term losses while they accumulate the talent
that guarantees a sustainable competitive advantage. We also show that equilibrium leads to
an inefficient selection of talent into the industry, and can be improved by policies that reduce
wage dispersion.

Experimenting With Career Concerns

Marina Halac
,
Columbia University and University of Warwick
Ilan Kremer
,
Hebrew University of Jerusalem and University of Warwick

Abstract

A manager who learns privately about a project over time may want to delay quitting it if recognizing failure/lack of success hurts his reputation. In the banking industry, managers may want to roll over bad loans. How do distortions depend on expected project quality? What are the effects of releasing public information about quality? A key feature of banks is that they learn about project quality from bad news, i.e. a default. We show that in such an environment, distortions tend to increase with expected quality and imperfect information about quality. Results differ if managers instead learn from good news.

A Theory of Personal Budgeting

Simone Galperti
,
University of California-San Diego

Abstract

Prominent research argues that consumers often use personal budgets to manage self-control problems. This paper analyzes the link between budgeting and self-control problems in consumption-saving decisions. It shows that the use of good-specific budgets depends on the combination of a demand for commitment and the demand for flexibility resulting from uncertainty about intratemporal trade-offs between goods. It explains the subtle mechanism which renders budgets useful commitments, their interaction with minimum-savings rules (another widely-studied commitment technique), and how budgeting depends on the intensity of self-control problems. This theory matches a number of empirical findings and can guide marketing personal budgeting devices.
Discussant(s)
Robert Gibbons
,
Massachusetts Institute of Technology
Johannes Horner
,
Yale University
Alexander Frankel
,
University of Chicago
JEL Classifications
  • D0 - General