The firm as the locus of social comparisons: Standard promotion practices versus up-or-out

Emmanuelle Auriol, Guido Friebel (gfriebel@wiwi.uni-frankfurt.de) and Frauke von Bieberstein

Journal of Economic Behavior & Organization, 2016, vol. 121, issue C, 41-59

Abstract: We suggest a parsimonious dynamic agency model in which workers have status concerns. A firm is a promotion hierarchy in which a worker's status depends on past performance. We investigate the optimality of two types of promotion hierarchies: (i) standard promotion practices, where agents have a job guarantee, and (ii) “up-or-out”, in which agents are fired when unsuccessful. We show that up-or-out is optimal if success is difficult to achieve. When success is less hard to achieve, standard promotion practices are optimal provided the payoffs associated with success are moderate. Otherwise, up-or-out is, again, optimal.

Keywords: Status; Promotion hierarchies; Incentives; Sorting (search for similar items in EconPapers)
JEL-codes: J3 L2 M5 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:121:y:2016:i:c:p:41-59

DOI: 10.1016/j.jebo.2015.09.005

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