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.

Additional Metadata
Keywords Intrinsic motivation · Commitment · Self-selection · Wage compensation · Exit bonus · Transparency
JEL Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc. (jel J31), Compensation Packages; Payment Methods (jel J33), Compensation and Compensation Methods and Their Effects (stock options, fringe benefits, incentives, family support programs, seniority issues) (jel M52), Labor Contracting Devices: Outsourcing; Franchising; Other (jel M55)
Persistent URL dx.doi.org/10.1007/s10645-019-09347-9, hdl.handle.net/1765/119646
Journal De Economist
Citation
Dur, A.J, & Schmittdiel, H. (2019). Paid to Quit. De Economist, 167(4), 1–20. doi:10.1007/s10645-019-09347-9