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External Recruitment as an Incentive Device

Kong-Pin Chen

Academia Sinica - Research Center for Humanities and Social Sciences; National Taiwan University - Department of Economics

November 5, 2003

External recruitment has often been viewed as a necessary evil in that it trades off the need for outside talent with 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. External recruitment, by reducing the marginal return of negative 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 workers.

Number of Pages in PDF File: 25

Keywords: External recruitment, Sabotage, promotion, relative performance, collusion

JEL Classification: J2, J3, D2

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Date posted: December 12, 2002  

Suggested Citation

Chen, Kong-Pin, External Recruitment as an Incentive Device (November 5, 2003). Available at SSRN: http://ssrn.com/abstract=298679 or http://dx.doi.org/10.2139/ssrn.298679

Contact Information

Kong-Pin Chen (Contact Author)
Academia Sinica - Research Center for Humanities and Social Sciences ( email )
Academia Sinica
Nankang, Taipei, 11529
886 2 2789 8160 (Phone)
886 2 2785 4160 (Fax)
HOME PAGE: http://idv.sinica.edu.tw/kongpin/
National Taiwan University - Department of Economics
21 Hsiu Chow Rd
Taipei, 10020
Feedback to SSRN

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