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Intergenerational conflicts of interest and seniority systems in organizations

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  • Ando, Munetomo
  • Kobayashi, Hajime

Abstract

This paper studies the role of a proposed seniority system in an organization. The organization consists of at least three overlapping generations of short-lived members and chooses either a shortsighted or a farsighted action in each period. This results in intergenerational conflicts of interest. The old generation desires to obtain an immediate profit, while the middle and young generations have incentives to invest for future profits. We use a model of infinitely repeated games and demonstrate that the seniority system solves these conflicts in the sense that the farsighted action profile is sustainable in equilibrium.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 65 (2008)
Issue (Month): 3-4 (March)
Pages: 757-767

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Handle: RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:757-767

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

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References

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  1. Barth, Erling, 1997. "Firm-Specific Seniority and Wages," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 495-506, July.
  2. Salop, Joanne & Salop, Steven, 1976. "Self-Selection and Turnover in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 619-27, November.
  3. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Maia Güell, 2004. "Is Seniority-Based Pay Used as a Motivation Device? Evidence from Plant Level Data," CEP Discussion Papers dp0646, Centre for Economic Performance, LSE.
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  7. Bhaskar, V., 1994. "Informational Constraints and the Overlapping Generations Model : Folk and Anti-Folk Theorems," Discussion Paper 1994-85, Tilburg University, Center for Economic Research.
  8. Smith, Lones, 1992. "Folk theorems in overlapping generations games," Games and Economic Behavior, Elsevier, vol. 4(3), pages 426-449, July.
  9. Luca Anderlini & Roger Lagunoff, 2000. "Communication in Dynastic Repeated Games: `Whitewashes' and `Coverups," Working Papers gueconwpa~01-01-03, Georgetown University, Department of Economics, revised 01 Jul 2001.
  10. Hajime Kobayashi, 2007. "Folk Theorems For Infinitely Repeated Games Played By Organizations With Short-Lived Members," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 517-549, 05.
  11. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May.
  12. Harris, Milton & Holstrom, Bengt, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 49(3), pages 315-33, July.
  13. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
  14. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9.
  15. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  16. Kandori, Michihiro, 1992. "Repeated Games Played by Overlapping Generations of Players," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 81-92, January.
  17. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
  18. Joanne Salop & Steve Salop, 1976. "Self-selection and turnover in the labor market," Special Studies Papers 80, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Peter Bardsley & Nisvan Erkal & Nikos Nikiforakis & Tom Wilkening, 2011. "Recursive Contracts, Firm Longevity, and Rat Races: Theory and Experimental Evidence," Department of Economics - Working Papers Series 1122, The University of Melbourne, revised 2011.

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