Ability, Career Concerns and Financial Incentives in a Multi-Task Setting

In a laboratory experiment I investigate the role of perceived own ability in a multi-task setting with career concerns under fixed wages and under financial incentives with a higher weight on the task measured with noise. I find that in the absence of career concerns participants allocate effort evenly between tasks under fixed wages and allocate more effort on the task measured with noise, both irrespective of individual ability levels. However, in presence of career concerns perceived own ability matters for effort allocation. In particular, career concerns distort effort allocation of agents with high perceived ability, whereas agents with low perceived ability show less distorted effort allocation. In the presence of career concerns the interaction between financial incentives and perceived ability is always disordinal, which implies that low ability agents exhibit less distorted behavior under any compensation contract. A higher explicit incentives weight on the task measured with greater noise helps to balance effort allocation, but makes all agents worse off due to strategic behavior of agents. To keep their chances on the labor market high ability agents increase their effort allocation to the precisely measured task slightly in anticipation of a strong focus on the precisely measured task of low ability agents. These findings are in line with economic predictions and show that perceived own ability moderates the relationship between financial incentives and career concerns on effort allocation