infonet-economy

The career concerns literature predicts that incentives for effort decline as beliefs about ability become more precise (Holmstrom, 1982/1999). In contrast, we show that effort can increase with belief precision when agents compete for promotions to better paid jobs that are assigned on the basis of perceived abilities. In this case, an intermediate level of precision provides the strongest incentive for effort, with effort increasing (decreasing) when beliefs are less (more) precise.