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A ‘threat’ is a ‘Threat’: Incentive Effects of Firing Threats with Varying Degrees of Performance Information

Jordi Brandts, Brice Corgnet (), Roberto Hernán-González, Jose Ortiz Gomez () and Carles Solà
Authors registered in the RePEc Author Service: Roberto Hernán González ()

No 1023, Working Papers from Barcelona Graduate School of Economics

Abstract: We study the incentive effect of firing threats when bosses have limited information about workers. We show that a minimal amount of individual information about workers’ effort such as the time spent at their work station is sufficient to ensure strong incentive effects. This supports the use of firing threats based on rudimentary yet uncontroversial measures of work performance such as absenteeism, in organizational settings in which only limited information about workers is available. Our results help understand the limited link between pay and performance observed in compensation contracts calling for an extension of the principal-agent model to take into account how workers (mis-)perceive the intensity of incentives.

Keywords: firing threats; Incentives; informativeness principle; laboratory experiments (search for similar items in EconPapers)
JEL-codes: C92 D23 D82 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-cta, nep-exp, nep-hrm and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1023

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