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Information, bilateral negotiations, and worker recruitment

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  • Schram, Arthur
  • Brandts, Jordi
  • Gërxhani, Klarita

Abstract

This paper studies experimentally how firms choose between using a centralized market and bilateral negotiations to recruit new personnel. In the market firms interact with several workers but do not have information about workers' behavior in the past. In the bilateral negotiations firms negotiate bilaterally with prospective workers and learn about workers' performance in previous jobs. We show that the interaction between social preferences, the incompleteness of contracts and the existence of information about a worker's past performance provides an explanation for firms forgoing market opportunities and bilaterally negotiating with a worker. We observe that approximately 30% of all job contracts were bilaterally negotiated when these contracts are incomplete as opposed to only 10% when contracts were complete. The surplus from trade is higher when incomplete contracts can be bilaterally negotiated, which can be attributed to the presence of information.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 54 (2010)
Issue (Month): 8 (November)
Pages: 1035-1058

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Handle: RePEc:eee:eecrev:v:54:y:2010:i:8:p:1035-1058

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Worker recruitment Labor markets Bilateral negotiations Indirect reciprocity Experiments;

References

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Cited by:
  1. Nicola Meccheri & Luciano Fanti, 2014. "Informal incentive labour contracts and product market competition," Journal of Economics, Springer, vol. 111(2), pages 131-149, March.

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