Something to Prove: Reputation in teams and hiring to introduce uncertainty

Abstract

Agents work for their own reputations when young but for their firms when old. An individual with an established reputation cannot credibly commit to exerting effort when working alone. However, by hiring and working with juniors of uncertain rep- utation, seniors will have incentives to exert effort. Incentives for young agents arise from a concern for their own reputation (and the opportunity to take over the firm) but older agents work for the reputation of their firms (and the opportunity to sell out to juniors). An important theoretical contribution is an example of a mechanism that endogenously introduces type uncertainty.