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External Recruitment as an Incentive Device

  • Kong-Pin Chen

    (Academia Sinica and National Taiwan University)

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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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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  14. Kong-Pin Chen, 2003. "Sabotage in Promotion Tournaments," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 119-140, April.
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