Career concerns, monetary incentives and job design

Abstract

We study optimal incentive contracts when commitments are limited, and agents have multiple tasks and career concerns. The agent career concerns are determined by the outside market. We show that the principal might want to give strongest explicit incentives for agents far from retirement to account for the fact that career concerns might induce behavior in conflict with the principal’s preferences. Furthermore, we show that maximized welfare might be decreasing in the strength of the career concerns, that optimal incentives can be positively correlated with various measures of uncertainty, and that career incentives have strong implications for optimal job design.