When Promotions Induce Good Managers to Be Lazy

In our context, a good-reputation manager favors risk when being perceived as good allows to be promoted while risk is observable but not verifiable. Indeed, it renders more difficult the learning process regarding her talent. In turn, this lowers her level of effort since the extent to which effort impacts the perception the market has about her talent is lessened. We show how and when monitoring helps employers restore incentives to work. By contrast, career concerns discipline a bad-reputation manager in our context, provided that promotions are sufficiently attractive. These results hold when two managers of heterogeneous reputation compete for one position.