Essays on Promotions, Incentives, and Career Concerns

Abstract

This thesis has three chapters. In the first chapter, we look at internal promotions that are used to provide incentives for effort, and to assign agents to jobs based on their ability and on their seniority. While the existing literature explains these factors in isolation, we integrate all of these factors in a unified framework in this chapter. The model yields three results. First, mid-career agents are more likely to be promoted. Second, more able agents need not be promoted, especially when labour markets are more competitive. And finally, junior agents are more likely to receive a promotion in more uncertain environments.

In the second chapter, we consider the phenomenon of external promotions - this is where a worker is moved from their current organisation to a different one that is owned by the same principal. External promotions are common in government-owned organisations where the principal (also the government) cares not only about their financial return, but also about their social responsibility. This chapter has three results. First, external promotions are more likely to be optimal when the intrinsic prosocial rewards are higher. Second, optimal promotions need not be efficient in order to provide better incentives. And third, improving in measuring the social responsibility may not increase the likelihood of the optimality of external promotions. It depends on the initial measure of the social responsibility task.

In the final chapter, we review the literature on promotions. We focus on three reasons of why promotions are popular in an organisation. First, promotions are a central way to motivate workers. Second, promotions are used for sorting workers based on their abilities. And finally, promotions are given to agents who are sufficiently senior in an organisation.