Delegated Recruitment and Hiring Distortions

34 Pages Posted: 16 Aug 2021 Last revised: 17 Sep 2023

See all articles by Jacob Kohlhepp

Jacob Kohlhepp

University of California, Los Angeles (UCLA) - Department of Economics; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Stepan Aleksenko

University of California Los Angeles

Date Written: August 13, 2021

Abstract

Firms increasingly rely on recruiters to find talent. Recruiters are typically paid using refund contracts, which specify a payment upon a successful candidate suggestion and hire, and a refund if a candidate is hired but leaves for any reason during an initial period of employment. We study how recruiters and refund contracts shape talent selection. When a firm needs to fill a position, it engages a recruiter who observes private signals about a candidate's productivity and decides whether to suggest this candidate to the firm. There is variation in both the candidates' productivity and in the quality of information available about productivity. We characterize the unique equilibrium and show that refund contracts induce artificial risk aversion in both the recruiter's suggestion strategy and the firm's hiring strategy relative to a first-best benchmark. This risk aversion leads to candidates with lower expected productivity but more informative signals ("safe bets") being favored over candidates with higher expected productivity but less informative signals ("diamonds in the rough"). Our findings imply that delegated recruitment generates statistical discrimination.

Keywords: delegation, contracting, screening, discrimination

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

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Chapel Hill, NC
United States

Stepan Aleksenko

University of California Los Angeles ( email )

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
201
Abstract Views
633
Rank
250,662
PlumX Metrics