Something to Prove: Reputation in teams

Agents work for their own reputations when young but for their …rms’when old. An individual with an established reputation cannot credibly commit to exerting e¤ort when working alone. However, by hiring and working with juniors of uncertain reputation, seniors will have incentives to exert e¤ort. Incentives for young agents arise from a concern for their own reputation (and the opportunity to take over the …rm) but older agents work for the reputation of their …rms (and the opportunity to sell out to juniors). An important theoretical contribution is an example of a mechanism that endogenously introduces type uncertainty. Key words: Reputation incentive, teams, overlapping generations, up-or-out JEL: C73 (Stochastic and Dynamic Games), D82 (Asymmetric and Private Information), L14 (Transactional Relationships: Contracts and Reputation), M12 (Personnel Economics) This paper is based on Chapter 3 of my PhD thesis. I have had the immense good fortune to have had the opportunity to work on this paper (under a number of varying titles) in a number of stimulating research environments— as a research assistant at the Financial Markets Group at the LSE, while visiting the Eitan Berglas School of Economics at Tel Aviv University and the Department of Economics at Harvard University and at Northwestern University and …nally at the Department of Economics at the Stern School of Business, NYU. I am grateful to them all and to seminar participants at these institutions, whose comments have signi…cantly improved and re…ned my initial intuition. I have also been privileged to have had the opportunity to discuss this work and present it at a number of other institutions. Among the many people from whose insight I have bene…tted, I particularly thank Mariagiovanna Baccara, Matthew Bidwell, Oliver Hart, Christian Hellwig, Bengt Holmstrom, Susan Lee, George Mailath, Niko Matouschek, Gerd Muehlheusser, Felix Muennich, Carlo Rosa, Larry Samuelson, Yossi Spiegel, Ran Spiegler, Steve Tadelis and Leeat Yariv; I am especially grateful to Margaret Bray, Eddie Dekel and Leonardo Felli. I gratefully acknowledge …nancial support from the ESRC (R42200034040). [email protected]; Economics Department, Stern School of Business, New York University, 44 West 4th Street, Room 7-73, New York, NY 10012, USA.