Articles

Mixed Up? That's Good for Motivation

A. KOCH, E.-A. PEYRACHE

Economic Theory

janvier 2008, vol. 34, n°1, pp.107-125

Départements : Economie et Sciences de la décision

Mots clés : Incentive contracts, Reputation, Mixed strategies, Human capital

http://ssrn.com/abstract=602382


We show that career concerns can arise in the absence of ex ante uncertainty about an agent’s type, if his unobservable actions influence future productivity. Implementing effort in mixed strategies allows the principal to endogenously introduce uncertainty about the agent’s ex post productivity and generate reputational incentives. Creating such ambiguity can be optimal for the principal, even though this exposes the agent to additional risk and reduces output. This finding for an environment with imperfect commitment contrasts with standard agency models, where implementing mixed strategy actions typically is not optimal if pure strategies can also be implemented


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