We presented a simple model in which agents could determine effort level with the
prospect of promotion. Even without any increase of payment or fringe benefits, promotion
could provide an incentive for hard work because it could be a signal of one’s ability and the
possibility of a better job offer in one’s future career. Outside firms that cannot observe the
agents’ current performance use promotion status in order to predict the agents’ ability. We
point out that some of the results of the standard career concerns model do not hold here.
Because promotion is a binary decision, extra effort becomes effective only when the
promotion has not been made without it. This shows that the dispersion of an agent’s ability
and noise as well as well-known signal-to-noise ratio play important roles in promotion.