| Abstract: | Market wages reflect expected productivity conditional on signals of past performance and past experience. These signals are generated at least partially on the job and create incentives for agents to choose high‐profile and highly visible tasks. When engaging in visible tasks can lead to losses for which the agent is not liable, a principal may profitably distort corporate investments and reward schemes to increase the opportunity cost of these tasks. This distortion may decrease welfare as it prevents the efficient discovery of workers’ talent. Heterogeneity in employee types induces substantial diversity in organizational and contractual choices, particularly regarding the extent to which conspicuous activities are tolerated or encouraged, the composition of corporate infrastructure, and contingent wages. |
