Managerial Career Concerns and Investments in Information

Todd T Milbourn, Richard L Shockley and Anjan Thakor ()

RAND Journal of Economics, 2001, vol. 32, issue 2, 334-51

Abstract: We extend the "implicit incentives" literature by analyzing how career concerns impact a risk-neutral manager's decision of how much to learn about a project before investing in it. The manager has unknown ability that determines the probability with which a good project is available, so the market updates ability assessments from project outcomes. While project choice is efficient in equilibrium, an unobservable investment in the precision of project evaluation allows the manager to control the probabilities of future reputational states. This distorts his investment in precision above first best when project payoffs can be observed only on accepted projects. Copyright 2001 by the RAND Corporation.

Date: 2001
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