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  • Pfann, Gerard A.

Abstract

This paper develops a theoretical model of optimal quit behaviour for a worker who holds an option to quit but faces a fixed cost of quitting. A worker will accept the outside offer only if the net present value of the difference in expected future cash flows associated with the old and the new job exceeds the costs of quitting plus the value of keeping the option to quit open. The implications of the model are consistent with some empirical facts of quit behaviour that we observe in manufacturing data in the US and in plant level data in The Netherlands.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 70 (2001)
Issue (Month): 2 (February)
Pages: 259-265

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Handle: RePEc:eee:ecolet:v:70:y:2001:i:2:p:259-265

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References

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  1. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, vol. 2(2), pages 233-57, April.
  3. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  4. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles 92-11, W.E. Upjohn Institute for Employment Research.
  5. Daniel S. Hamermesh & Gerard Pfann, 1992. "Turnover and the Dynamics of Labor Demand," NBER Working Papers 4204, National Bureau of Economic Research, Inc.
  6. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
  7. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
  8. Jovanovic, Boyan, 1979. "Firm-specific Capital and Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1246-60, December.
  9. McLaughlin, Kenneth J, 1991. "A Theory of Quits and Layoffs with Efficient Turnover," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 1-29, February.
  10. Gray, Jo Anna, 1978. "On Indexation and Contract Length," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 1-18, February.
  11. John T. Addison & Pedro Portugal, 1987. "The effect of advance notification of plant closings on unemployment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 41(1), pages 3-16, October.
  12. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
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Citations

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Cited by:
  1. Gerard A. Pfann & Daniel S. Hamermesh, 2008. "Two Sided-Learning with Applications to Labour Turnover and Worker Displacement," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(5+6), pages 423-445, December.
  2. Dohmen, Thomas J. & Pfann, Gerard A., 2004. "Worker separations in a nonstationary corporate environment," European Economic Review, Elsevier, vol. 48(3), pages 645-663, June.
  3. Pfann, Gerard A. & Blumberg, Boris F., 2001. "Social Capital and the Uncertainty Reduction of Self-Employment," IZA Discussion Papers 303, Institute for the Study of Labor (IZA).
  4. Wossink, Ada & Kuminoff, Nicolai V., 2005. "Valuing the Option to Switch to Organic Farming: An Application to U.S. Corn and Soybeans," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24716, European Association of Agricultural Economists.
  5. Gielen, Anne C. & Tatsiramos, Konstantinos, 2012. "Quit behavior and the role of job protection," Labour Economics, Elsevier, vol. 19(4), pages 624-632.
  6. Osorno Del Rosal, Mª P., 2003. "La búsqueda de empleo de los ocupados: intensidad y motivos," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 21, pages 151-174, Abril.
  7. Gerard A. Pfann & Daniel S. Hamermesh, 2001. "Two-Sided Learning, Labor Turnover and Displacement," NBER Working Papers 8273, National Bureau of Economic Research, Inc.
  8. Pfann, Gerard A. & Hamermesh, Daniel S., 2001. "Two-Sided Learning, Labor Turnover and Worker Displacement," IZA Discussion Papers 308, Institute for the Study of Labor (IZA).
  9. Kuminoff, Nicolai V. & Wossink, Ada, 2005. "Valuing the Option to Convert from Conventional to Organic Farming," 2005 Annual meeting, July 24-27, Providence, RI 19531, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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