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External Recruitment as an incentive Device

Kong-Pin Chen

No 54, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: External recruitment has often been viewed as a necessary evil in that it trades off the need for outside talents with the incentives of inside workers. This paper, however, shows that even from an incentive viewpoint, external recruitment has its positive role to play. Specifically, if promotion is based on relative performance, then negative activities in the form of sabotage are a valuable instrument to compete. This results in inefficiency of the workers' efforts and performance of the firm. External recruitment, by reducing the marginal return of negative activity relative to that of productive activity, can restore the incentives of the workers to engage in productive activity and enhances the firm's performance. We also show that even when negative activities are not a concern, external recruitment can sometimes avoid the shirking equilibrium, or prevents collusion of the workers

Keywords: promotio; relative performance; sabotage; external recruitment (search for similar items in EconPapers)
JEL-codes: J22 J33 L22 (search for similar items in EconPapers)
Date: 2004-08-11
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http://repec.org/esNASM04/up.18072.1071476419.pdf (application/pdf)

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Journal Article: External Recruitment as an Incentive Device (2005) Downloads
Working Paper: External Recruitment as an Incentive Device (2004) Downloads
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