Abstract
Reputation concerns can discipline agents to take costly effort to generate good outcomes, but what if outcomes are not always observed? We consider a model of reputation with shifting observability, and ask how intermittent observability affects agents’ incentives. Infrequent observability can sharpen reputation incentives. If the agent anticipates that outcomes may not be observed in the future, the benefits from effort today are enhanced due to a “coasting” effect. By investing effort when outcomes are more likely observed, the agent can improve her reputation, and when the audience is inattentive in the future, she can coast on this reputation without any additional effort. We show that future opportunities to rest on one’s laurels can lead to greater overall effort and higher efficiency than constant observation. This has implications for the optimal design of a review system that we explore by characterizing the optimal observability structure to maximize efficient effort.