Can Job Rotation Eliminate the Ratchet Effect: Experimental Evidence

Abstract

Regularly rotating agents between jobs in firms may lower the ratchet effect. Specifically, job rotation could disentangle the influence of current performance on agents' future incentives. In this paper, we conduct a controlled experiment to test the effectiveness of job rotation in eliminating the ratchet effect. Additionally, we compare effort provision between the situation where agents are rotated exogenously and the situation where the principal rotates agents endogenously. We find that the ratchet effect is effectively reduced when workers are informed that they will be rotated in the future. Contrary to the theoretical prediction, the ratchet effect is also significantly reduced when a principal has a costly option of rotating agents.

Keywords: Principal-Agent Model, Ratchet Effect, Job Rotation, Perfect Bayesian Equilibrium

JEL Classification: C91, C92, D23, M55