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  • Pfann, Gerard Antonie

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

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2563.

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Date of creation: Sep 2000
Date of revision:
Handle: RePEc:cpr:ceprdp:2563

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Related research

Keywords: Downsizing; Fixed Costs; Job Mobility; Timing; Voluntary Turnover;

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References

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  1. 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.
  2. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-48, September.
  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. Jovanovic, Boyan, 1979. "Firm-specific Capital and Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1246-60, December.
  5. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
  6. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
  7. 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.
  8. 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.
  9. Daniel S. Hamermesh & Gerard Pfann, 1992. "Turnover and the Dynamics of Labor Demand," NBER Working Papers 4204, National Bureau of Economic Research, Inc.
  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. 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.
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Citations

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Cited by:
  1. Gerard A. Pfann & Daniel S. Hamermesh, 2000. "Two-Sided Learning, Labor Turnover, and Worker Displacement," Working Papers 0021, Harris School of Public Policy Studies, University of Chicago.
  2. 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.
  3. Dohmen, Thomas & Pfann, Gerard A., 2000. "Worker Separations in a Nonstationary Corporate Environment," IZA Discussion Papers 201, Institute for the Study of Labor (IZA).
  4. Gielen, Anne C. & Tatsiramos, Konstantinos, 2012. "Quit Behavior and the Role of Job Protection," IZA Discussion Papers 6540, Institute for the Study of Labor (IZA).
  5. 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).
  6. Gerard A. Pfann & Daniel S. Hamermesh, 2001. "Two-Sided Learning, Labor Turnover and Displacement," NBER Working Papers 8273, National Bureau of Economic Research, Inc.
  7. 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.
  8. 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).
  9. 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.

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