The Incentive for Separation: Job Training and Put Options

35 Pages Posted: 16 Aug 2010 Last revised: 5 Dec 2010

Date Written: December 1, 2010

Abstract

This study examines how a job training, combined with put options, may induce workers with a poor fit with a firm to leave, which would enhance the firm's screening efficiency and value. In many cases, neither workers nor the employing firm have information about their fit, even though the fit may be the most important determinant of employee performance. Job training offers an opportunity for the worker to learn about the fit. Although the fit remains the worker's private information, the firm can design more efficient contracts and selectively motivate a trained worker with a signal of a high fit. Moreover, put options can improve screening efficiency by providing an incentive for the worker to leave voluntarily if he or she observes a low fit signal. However, put options contracts may be too aggressive and encourage even workers with a high fit to leave in response to an imperfect signal from job training. Considering the overall trade-off, this research shows that a put option contract can increase a firm's value, as long as the precision of the job training signal is not too low.

Keywords: Job Training, Adverse Selection, Incentives, Put Options

JEL Classification: D82, M41, M53

Suggested Citation

Yoon, Dae-Hee, The Incentive for Separation: Job Training and Put Options (December 1, 2010). AAA 2011 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1660128 or http://dx.doi.org/10.2139/ssrn.1660128

Dae-Hee Yoon (Contact Author)

Yonsei University ( email )

School of Business
Seoul
Korea, Republic of (South Korea)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
113
Abstract Views
1,296
rank
263,310
PlumX Metrics