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External Recruitment as an incentive Device

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  • Kong-Pin Chen

Abstract

External recruitment has often been viewed as a necessary evil in that it trades off the need for outside talents with the incentives of inside workers. This paper, however, shows that even from an incentive viewpoint, external recruitment has its positive role to play. Specifically, if promotion is based on relative performance, then negative activities in the form of sabotage are a valuable instrument to compete. This results in inefficiency of the workers' efforts and performance of the firm. External recruitment, by reducing the marginal return of negative activity relative to that of productive activity, can restore the incentives of the workers to engage in productive activity and enhances the firm's performance. We also show that even when negative activities are not a concern, external recruitment can sometimes avoid the shirking equilibrium, or prevents collusion of the workers

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  • Kong-Pin Chen, 2004. "External Recruitment as an incentive Device," Econometric Society 2004 North American Summer Meetings 54, Econometric Society.
  • Handle: RePEc:ecm:nasm04:54
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Gürtler, Oliver & Münster, Johannes, 2010. "Sabotage in dynamic tournaments," Journal of Mathematical Economics, Elsevier, vol. 46(2), pages 179-190, March.
    3. repec:elg:eechap:15325_9 is not listed on IDEAS
    4. 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.
    5. Kräkel, Matthias & Szech, Nora & von Bieberstein, Frauke, 2014. "Externalities in recruiting," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 123-135.
    6. Timothy N. Bondtn, 2017. "Internal Labor Markets in Equilibrium," Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(1), pages 28-67.
    7. Pedro Martins & Francisco Lima, 2006. "External recruitments and firm performance," Applied Economics Letters, Taylor & Francis Journals, vol. 13(14), pages 911-915.
    8. Subhasish Chowdhury & Oliver Gürtler, 2015. "Sabotage in contests: a survey," Public Choice, Springer, vol. 164(1), pages 135-155, July.
    9. Kirkegaard Rene, 2008. "Comparative Statics and Welfare in Heterogeneous All-Pay Auctions: Bribes, Caps, and Performance Thresholds," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-32, September.
    10. Christian Pfeifer, 2011. "Handicaps in Job Assignment: Insiders, Outsiders and Gender," Journal of Labor Research, Springer, vol. 32(1), pages 1-20, March.
    11. Bossler, Mario & Grunau, Philipp, 2016. "Asymmetric information in external versus internal promotions," IAB Discussion Paper 201611, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    12. Münster, Johannes, 2006. "Selection tournaments, sabotage, and participation
      [Auswahlturniere, Sabotage und Teilnahme]
      ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2006-08, Social Science Research Center Berlin (WZB).
    13. René Kirkegaard, 2007. "Comparative Statics and Welfare in Heterogeneous Contests: Bribes, Caps, and Performance Thresholds," Working Papers 0702, Brock University, Department of Economics.
    14. 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.
    15. Kräkel, Matthias & Schöttner, Anja, 2012. "Internal labor markets and worker rents," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 491-509.
    16. J. Atsu Amegashie, 2013. "Sabotage in Contests: An Overview," CESifo Working Paper Series 4422, CESifo Group Munich.
    17. Junichiro Ishida, 2012. "Dynamically Sabotage-Proof Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 30(3), pages 627-655.

    More about this item

    Keywords

    promotio; relative performance; sabotage; external recruitment;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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