Two-Sided Uncertainty and "Up-or-Out" Contracts

Kahn, Charles M.; Huberman, Gur

doi:10.1086/298190

Cited by 231 publications

(141 citation statements)

References 14 publications

Supporting

Mentioning

133

Contrasting

Unclassified

Order By: Relevance

“…Furthermore, promotion rules can serve this function even in finite-horizon employment relationships, whereas the repeated-game models described above require the shadow of the future to influence the firm's current choices. I describe simple versions of Prendergast's (1993) model of promotions and Kahn and Huberman's (1988) model of an up-or-out rule; Gibbons and Waldman (1998) survey the broader literature on careers in organizations.…”

Section: Skill Acquisitionmentioning

confidence: 99%

Incentives in Organizations

Gibbons

1998

Journal of Economic Perspectives

687

176

View full text Add to dashboard Cite

In 1975, Steven Kerr published ''On the Folly of Rewarding A, While Hoping for B.'' The argument was simple: you get what you pay for. Kerr distilled this unifying theme from a disparate set of examples involving politicians, soldiers, doctors, orphanage directors, professors, and students, as well as manufacturing and clerical employees and even human-resource managers. From these examples, concluded that two main causes of distorted incentives are ''fascination with an 'objective' criterion, [where] individuals seek to establish simple, quantifiable standards against which to measure and reward performance'' and ''overemphasis on highly visible behaviors, [when] some parts of the task are highly visible while others are not.'' It took agency theory 15 years to express Kerr's title, not to mention to evaluate or extend his conclusions. During this period, agency theory was obsessed with the tradeoff between incentives and insurance, even though clear-eyed observations like Kerr's about the design and performance of real incentive contracts suggested that several other issues are at least as important. Fortunately, recent work has brought agency theory not only to Kerr's position but beyond.In this paper I summarize four new strands in agency theory that help me think about incentives in real organizations. As a point of departure, I begin with a quick sketch of the classic agency model. I then discuss static models of objective performance measurement that sharpen Kerr's argument; repeated-game models of subjective performance assessments; incentives for skill development rather than simply for effort; and incentive contracts between versus within organizations. I con- Management, Sloan School, Massachu- Robert Gibbons is Sloan Distinguished Professor of

show abstract

Section: Skill Acquisitionmentioning

confidence: 99%

Incentives in Organizations

Gibbons

1998

Journal of Economic Perspectives

687

176

View full text Add to dashboard Cite

show abstract

“…This paper also contributes to the literature on strategic models of hidden or unverifiable investments. Regarding agency models, Kahn and Huberman (1988) and Prendergast (1993) find that up-or-out contracts and promotions can sometimes alleviate hold-up problems when workers can invest in firm-specific human capital and output is non-contractible; I instead explore market-based incentives in settings where competition and human capital of a general nature make such problems mute. More recently, a growing body of literature on stochastic games with hidden investments has analyzed strategic behavior drawing mostly on firms' reputations as the main source of inspiration.…”

Section: Examine How Career Concerns Are Shaped By the Nature Of Prmentioning

confidence: 99%

Career Concerns and the Nature of Skills

Cisternas

2018

American Economic Journal: Microeconomics

View full text Add to dashboard Cite

A common force driving many productive decisions by workers is the possibility of being perceived as skilled in a certain area of expertise. While such career concerns are a defining feature of many occupations, new technologies that facilitate the flow of information about potential employees, as well as online marketplaces that enable matches between firms and workers, naturally lead these motives to play an even more predominant role nowadays. Studying how markets reward ability is a relevant topic for two reasons. First, it helps to uncover the mechanisms through which workers can build their reputations in labor markets. Second, it helps to evaluate whether market-based incentives induce appropriate productive decisions by workers, thereby contributing to the discussion of economic policy.In traditional models of career concerns (e.g., Holmström 1999; Dewatripont, Jewitt, and Tirole 1999; and Bonatti and Hörner 2017), reputation is understood as a market's belief concerning a worker's unobserved measure of productive ability modeled as an exogenous type (e.g., "talent," either fixed or stochastically evolving over time); the worker's action (e.g., "effort") is in turn a direct input to

show abstract

“…24 Kahn and Huberman [1988] offer a different explanation; an up or out policy emerges as an optimal mechanism to prevent firms from reneging on compensation to workers. Good workers cannot be labeled "bad" and not promoted because they have to be fired, at some cost to the firm.…”

Section: University Of Chicago and Nbermentioning

confidence: 99%

The Firm as a Dedicated Hierarchy: A Theory of the Origin and Growth of Firms

Rajan¹,

Zingales²

2000

View full text Add to dashboard Cite

Two-Sided Uncertainty and "Up-or-Out" Contracts

Cited by 231 publications

References 14 publications

Incentives in Organizations

Incentives in Organizations

Career Concerns and the Nature of Skills

The Firm as a Dedicated Hierarchy: A Theory of the Origin and Growth of Firms

Contact Info

Product

Resources

About