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The Hidden Costs of Downsizing

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  • Heinz, Matthias
  • Drzensky, Frank

Abstract

We analyze whether a principal s decision to layoff an agent affects the performance of the surviving agents. To study the impact of the decision in isolation, we conducted an experimental principal-agent game. We find that agents reduce their performance by 37% as a response to the decision. Heterogeneity in principals decisions can largely be explained by different beliefs about how agents react to layoffs.

Suggested Citation

  • Heinz, Matthias & Drzensky, Frank, 2013. "The Hidden Costs of Downsizing," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79764, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc13:79764
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    More about this item

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition

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