DP10035 Managerial Attention and Worker Engagement
|Author(s):||Marina Halac, Andrea Prat|
|Publication Date:||June 2014|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10035|
We study a dynamic agency problem with two-sided moral hazard: the worker chooses whether to exert effort or shirk; the manager chooses whether to invest in an attention technology to recognize worker performance. In equilibrium the worker uses past recognition to infer managerial attention. An engagement trap arises: absent recent recognition, both worker effort and managerial investment decrease, making a return to high productivity less likely as time passes. In a sample of ex-ante identical firms, firm performance, managerial quality, and worker engagement display heterogeneity across firms, positive correlation, and persistence over time.