Delegated Recruitment and Hiring Distortions

39 Pages Posted: 16 Aug 2021

See all articles by Jacob Kohlhepp

Jacob Kohlhepp

University of California, Los Angeles (UCLA) - Department of Economics

Stepan Aleksenko

affiliation not provided to SSRN

Date Written: August 13, 2021

Abstract

A firm delegates search for a worker to a recruiter. Productivity is uncertain prior to hire with recruiter beliefs characterized by an expectation and variance. Delegation occurs using a refund contract which is common in the industry. We analyze how delegation in this setting shapes search behavior and the composition of hires. We demonstrate that delegation is theoretically equivalent to making the search technology less accurate. This generates inefficiency: search effort and social surplus are lower under delegation than in the first-best benchmark. We show this inefficiency is driven by moral hazard with a multitasking flavor. The recruiter wastes search effort finding low variance workers at the expense of high expectation workers. As a result, as workers become more homogeneous with respect to productivity variance, delegation becomes more efficient. Our model provides a microfoundation for variance-based statistical discrimination.

Keywords: moral hazard, delegation, contracting, sequential search, recruit, discrim-ination in hiring

JEL Classification: D83, D86, J7

Suggested Citation

Kohlhepp, Jacob and Aleksenko, Stepan, Delegated Recruitment and Hiring Distortions (August 13, 2021). Available at SSRN: https://ssrn.com/abstract=3905019 or http://dx.doi.org/10.2139/ssrn.3905019

Jacob Kohlhepp (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Stepan Aleksenko

affiliation not provided to SSRN

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