Alexander Koch and Eloic Peyrache (2004) Mixed up? That's good for motivation.
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An essential ingredient in models of career concerns is ex ante uncertainty about an agent’s type. This paper shows how career concerns can arise even in the absence of any such ex ante uncertainty, if the unobservable actions that an agent takes influence his future productivity. By implementing effort in mixed strategies the principal can endogenously induce uncertainty about the agent’s ex post productivity and generate reputational incentives. Our main result is that creating such ambiguity can be optimal for the principal, even though this exposes the agent to additional risk and reduces output. This finding demonstrates the importance of mixed strategies in contracting environments with imperfect commitment, which contrasts with standard agency models where implementing mixed strategy actions typically is not optimal if pure strategies are also implementable.
This is a Accepted version This version's date is: 2004 This item is not peer reviewed
https://repository.royalholloway.ac.uk/items/3e1970a0-1165-83f3-4d2d-8dfefd261b7c/1/
Deposited by Leanne Workman (UXYL007) on 16-Oct-2012 in Royal Holloway Research Online.Last modified on 16-Oct-2012
©2004 Alexander K. Koch and Eloic Peyrache. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit including © notice, is given to the source.