published in: European Economic Review, 2006, 50 (1), 147-170
We experimentally investigate a simple version of Holmström’s career concerns model in
which firms compete for agents in two consecutive periods. Profits of firms are determined by
agents’ unknown ability and the effort they choose. Before making second-period wage offers
firms are informed about first-period profits. In a different treatment firms additionally learn
the abilities of agents. Theory suggests high first-period equilibrium effort in the hidden ability
treatment but no effort elsewhere. However, we find that effort is significantly higher in the
revealed ability treatment and therefore conclude that transparency does not weaken, but
strengthen career concerns incentives.
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