Inspired by a recent observation about an online retail company, this paper explains why a frm may fnd it optimal to ofer an exit bonus to recent hires so as to induce self-selection. We study a double adverse selection problem, in which the principal can neither observe agents’ commitment to the job nor their intrinsic motivation. A steep wage-tenure profle deters uncommitted agents from applying. An exit bonus can stimulate that—among the committed agents—those who discovered that they are not intrinsically motivated for the job discontinue employment with the principal. Our key fndings are that ofering an exit bonus increases profts when the frst adverse selection problem is sufciently severe compared to the second and that the exit bonus needs to come as a surprise for the agents in order to function well.
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| doi.org/10.1007/s10645-019-09347-9, hdl.handle.net/1765/119646 | |
| De Economist | |
| Organisation | Erasmus School of Economics |
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Dur, R., & Schmittdiel, H. (2019). Paid to Quit. De Economist, 167(4), 1–20. doi:10.1007/s10645-019-09347-9 |
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