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External Recruitment as an Incentive Device

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  • Kong-Pin Chen

    (Academia Sinica and National Taiwan University)

Abstract

External recruitment is often believed to be harmful in that it trades off the need for outside talents with the incentives of inside workers. This article shows that, even from an incentive viewpoint, external recruitment has its powerful function. Specifically, if promotion is based on relative performance, then negative activities (sabotages) are a valuable instrument for competition. This results in inefficiency of the firm. External recruitment, by reducing the marginal return of negative effort relative to that of productive effort, restores the incentives in productive activity. Even without sabotage concern, external recruitment can avoid shirking equilibrium or prevent workers' collusion.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 23 (2005)
Issue (Month): 2 (April)
Pages: 259-278

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Handle: RePEc:ucp:jlabec:v:23:y:2005:i:2:p:259-278

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  8. Kong-Pin Chen, 2003. "Sabotage in Promotion Tournaments," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 119-140, April.
  9. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
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  14. Leonardo Felli & J. Miguel Villas-Boas, 2000. "Renegotiation and Collusion in Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 453-483, December.
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Citations

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Cited by:
  1. Junichiro Ishida, 2012. "Dynamically Sabotage-Proof Tournaments," ISER Discussion Paper 0838, Institute of Social and Economic Research, Osaka University.
  2. Münster, Johannes, 2006. "Selection tournaments, sabotage, and participation," Discussion Papers, Research Unit: Market Processes and Governance SP II 2006-08, Social Science Research Center Berlin (WZB).
  3. Gürtler, Oliver & Münster, Johannes, 2009. "Sabotage in dynamic tournaments," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 266, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Münster, Johannes, 2006. "Selection Tournaments, Sabotage, and Participation," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 118, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. J. Atsu Amegashie, 2013. "Sabotage in Contests: An Overview," CESifo Working Paper Series 4422, CESifo Group Munich.
  6. Kräkel, Matthias & Schöttner, Anja, 2012. "Internal labor markets and worker rents," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 491-509.
  7. René Kirkegaard, 2007. "Comparative Statics and Welfare in Heterogeneous Contests: Bribes, Caps, and Performance Thresholds," Working Papers 0702, Brock University, Department of Economics.
  8. Lewis Evans & Graeme Guthrie & Neil Quigley, 2012. "Contemporary Microeconomic Foundations for the Structure and Management of the Public Sector," Treasury Working Paper Series 12/01, New Zealand Treasury.
  9. Christian Pfeifer, 2011. "Handicaps in Job Assignment: Insiders, Outsiders and Gender," Journal of Labor Research, Springer, vol. 32(1), pages 1-20, March.
  10. Pedro Martins & Francisco Lima, 2006. "External recruitments and firm performance," Applied Economics Letters, Taylor & Francis Journals, vol. 13(14), pages 911-915.
  11. Benjamin, Daniel K. & Thornberg, Christopher, 2007. "Organization and incentives in the age of sail," Explorations in Economic History, Elsevier, vol. 44(2), pages 317-341, April.

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