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Standard promotion practices versus up-or-out contracts

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  • Suman Ghosh
  • Michael Waldman

Abstract

This article develops a theory concerning the choice between standard promotion practices and up-or-out contracts. Our theory is based on asymmetric learning and promotion incentives. We find that firms employ up-or-out contracts when firm-specific human capital is low and standard promotion practices when it is high. We also find that, if commitment to a wage floor is feasible and effort provision is important, up-or-out is employed when low- and high-level jobs are similar. These results are consistent with many of the settings in which up-or-out is typically observed, such as law firms and academia. Copyright (c) 2010, RAND.

Suggested Citation

  • Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up-or-out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325.
  • Handle: RePEc:bla:randje:v:41:y:2010:i:2:p:301-325
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