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Firm-fit transparency and incentives

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  • Ramchandani, Abhishek

Abstract

Firms vary in whether they are transparent with employees about their “fit” within the firm. We build an analytical model to provide an explanation for these variations. The trade-off in our setting is that transparency motivates the “good-fit” employee and demotivates the “bad-fit” employee. Our main result shows that a firm commits to a policy of transparency (secrecy) only when employee success is less (more) informative of effort for a good-fit employee. We also establish that transparency is generally suboptimal when it can induce a good-fit employee to become complacent.

Suggested Citation

  • Ramchandani, Abhishek, 2024. "Firm-fit transparency and incentives," Economics Letters, Elsevier, vol. 236(C).
    • Handle: RePEc:eee:ecolet:v:236:y:2024:i:c:s0165176524000879
    DOI: 10.1016/j.econlet.2024.111604
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    More about this item

    Keywords

    Employee-firm fit; Transparency; Contracting; Complacency; Output-effort informativeness;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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