Abstract

We present a novel theory of the employment relationship. A manager can invest in attention technology to recognize good worker performance. The technology may break and is costly to replace. We show that as time passes without recognition, the worker's belief about the manager's technology worsens and his effort declines. The manager responds by investing, but this investment is insufficient to stop the decline in effort and eventually becomes decreasing. The relationship, therefore, continues deteriorating, and a return to high performance becomes increasingly unlikely. These deteriorating dynamics do not arise when recognition is of bad performance or independent of effort

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Citation

Halac, Marina, and Andrea Prat. "Managerial Attention and Worker Performance." American Economic Review 106, no. 10 (October 2016): 3104-3132.

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