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External Recruitment versus Internal Promotion

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  • Chan, William
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    Abstract

    This article analyzes the choice between internal promotion and external recruitment within the framework of an economic contest. Opening up the competition for a position to external candidates reduces the chance of promotion for existing workers and, therefore, their incentive to work. Increasing the prize for winning can maintain incentives but is limited by moral hazard and potentially disruptive office politics. Alternatively, a competitive handicap can be awarded to existing workers to boost their chances. This strategy is consistent with the general observation that an external candidate is recruited only if she is significantly superior to the internal contestants. Copyright 1996 by University of Chicago Press.

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    File URL: http://dx.doi.org/10.1086/209822
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    Article provided by University of Chicago Press in its journal Journal of Labor Economics.

    Volume (Year): 14 (1996)
    Issue (Month): 4 (October)
    Pages: 555-570

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    Handle: RePEc:ucp:jlabec:v:14:y:1996:i:4:p:555-70
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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    1. 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 841-864, October.
    2. Dye, Ronald A, 1984. "The Trouble with Tournaments," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 147-149, January.
    3. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-715, September.
    4. Green, Jerry R & Stokey, Nancy L, 1983. "A Comparison of Tournaments and Contracts," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 349-364, June.
    5. repec:sae:ilrrev:v:43:y:1990:i:3:p:74-88 is not listed on IDEAS
    6. O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 27-56, January.
    7. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    8. Bhattacharya, Sudipto & Guasch, J Luis, 1988. "Heterogeneity, Tournaments, and Hierarchies," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 867-881, August.
    9. Ronald G. Ehrenberg & Michael L. Bognanno, 1990. "The Incentive Effects of Tournaments Revisited: Evidence from the European PGA Tour," ILR Review, Cornell University, ILR School, vol. 43(3), pages 74, April.
    10. Glazer, Amihai & Hassin, Refael, 1988. "Optimal Contests," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 133-143, January.
    11. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
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