Working Paper: NBER ID: w25252
Authors: Boyan Jovanovic; Julien Prat
Abstract: Cyclical patterns in earnings can arise when contracts between firms and their workers are incomplete, and when workers cannot borrow or lend so as to smooth their consumption. Earnings cycles generate occasional large changes in earnings, consistent with some recent empirical findings. At the calibrated parameter values, financial constraints promote investment in reputation – an intangible capital form – in contrast to their documented inhibiting effect on investment in tangible capital.
Keywords: reputation; career concerns; earnings dynamics; endogenous fluctuations
JEL Codes: D31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial constraints (D10) | Consumption smoothing (D15) |
| Consumption growth (E20) | Discount factor (H43) |
| Discount factor (H43) | Reputation building (Z13) |
| Effort levels (D29) | Consumption growth (E20) |
| Effort levels (D29) | Reputation cycles (E32) |
| Reputation cycles (E32) | Average reputation capital (D29) |
| Income noise reduction (D31) | Income volatility (D31) |
| Reputational concerns (M14) | Income volatility (D31) |
| Effort levels (D29) | Income volatility (D31) |