Personnel Economics Resources-- Quarterly Update December 2020

[Peter Kuhn]

During the past three months, the following references have been added to the Personnel Economics Resources website:  

Please remember that:

• the site is searchable at any time for key and recent articles on any personnel topic you may be working on
• all references are linked for easy access
• numbered section headings correspond to my textbook
• newcomers can sign up for email updates on the site

A special Holiday Notice:  As one of the few positive side-effects of the pandemic, I'm pleased to report that a complete set of recorded video lectures are now available for my Short Course in Personnel Economics. 

The Principal-Agent Problem

1-4:  The Basic Principal-Agent Problem

D'Acunto, Francesco, Jin Xie, and Jiaquan Yao. 2020 “Trust and Contracts: Empirical Evidence” CESifo Working Paper No. 8714

While most principal-agent models represent contracts by simple mathematical functions, real-world, written contracts can be extremely complex.  This paper shows that the amount of detail in real-world consulting contracts increases when an unexpected shock causes the level of trust between the parties to decline.  Contracts also become contingent on a larger number of verifiable states of nature. The authors argue contracts become more ‘complete’ and state-contingent when the parties do not trust each other’s reaction to unplanned events.

 

5.5:  Multi-task Principal-Agent Interactions

Alexander, Diane. How Do Doctors Respond to Incentives? Unintended Consequences of Paying Doctors to Reduce Costs  Journal of Political Economy 128(11): 4046-4096.

In a recent program, U.S. physicians received bonuses for reducing the total hospital costs of admitted Medicare patients.  The author shows that doctors respond to the bonuses by becoming more likely to admit patients whose treatment can generate high bonuses, and by sorting healthier patients into participating hospitals.  The results highlight the ability of doctors to game incentive schemes. 

 

Evidence on Employee Motivation 

 10.7 Fairness Among Workers

Peer Effects on Productivity: 

Afridi, Farzana, Amrita Dhillon, and Swati Sharma. 2020 The Ties That Bind Us: Social Networks and Productivity in the Factory IZA discussion paper no. 13711

In a garment manufacturing firm in India, the authors find that a 1 percentage point increase in the share of own-caste workers in the line increases daily individual productivity by about 10 percentage points. The lowest performing worker increases her effort by more than 15 percentage points when the production line has a more homogeneous caste composition.  The authors argue that these large effects are caused by strong complementarities between workers in the production function.  Thus, even in the absence of explicit group-based financial incentives, social networks can be leveraged to improve group productivity.

Selection 

12.  Choosing Qualifications (classical input demand theory)

Amodio, Francesco and Miguel A. Martinez-Carrasco. 2020 Workplace Incentives and Organizational Learning IZA discussion paper no. 13898

While economists usually assume that the shape of the production function is known, in practice workplace incentives actually affect workers’ knowledge of the production function.  This is illustrated by the effects of a sudden change in the pay schedule at a Peruvian egg production plant. 

 

14:  Recruitment: Formal versus Informal? Broad versus Narrow?

Lochner, Benjamin, Christian Merkl, Heiko Stüber, and Nicole Gürtzgen. 2020 “Recruiting Intensity and Hiring Practices: Cross-Sectional and Time-Series Evidence” IZA discussion No. 13678. 

How do firms change their recruiting methods when they need to hire more workers?  This paper shows that firms that need to grow rapidly post more vacancies, search more intensely, and reduce their standards for worker quality.

 

15:  Choosing from the Pool: Testing, Discretion, and Self-Selection

Bellemare, Charles, Marion Goussé, Guy Lacroix, and Steve Marchand 2020 Video Resumes and Job Search Outcomes: Evidence from a Field Experiment IZA discussion paper no. 13656

Using a field experiment, the authors show that video resumes raise workers’ call-back rates for both workers with and without a wheelchair that was visible in the resume. 

Kreisman, D., Smith, J., & Arifin, B. 2020. "Labor Market Signaling and the Value of College: Evidence from Resumes and the Truth." Unpublished manuscript, Georgia State University, 2020.

By comparing workers’ resumes on an on-line job board to official school records, the authors find that one in three workers who attended but did not complete college strategically choose not to mention attending college at all.  The authors also find evidence of lying on resumes, and show which degrees are most likely to be falsely claimed.  They also study the extent to which workers benefit from omitting and falsifying their own resumes. 

 

18:  Setting Pay:  Efficiency Wages

Firms’ reputations:

Bassanini, Andrea, Eve Caroli, Bruno Chaves Ferreira and Antoine Rebérioux 2020 Don't Downsize This! Social Reactions to Mass Dismissals on Twitter  IZA discussion paper No. 13840. 

The authors use Twitter posts to study the effect of downsizing on firms’ reputations in the labor market.  Job-destruction announcements immediately elicit numerous and strongly negative reactions. These reactions are systematically more important than reactions to job creations. Thus, job destructions appear to generate reputational costs in the form of a strong negative buzz involving the company name.

Tournaments

21.3:  Risk-Taking in Tournaments

 

Dijk, Oege, Martin Holmen, Michael Kirchler. 2014. Rank matters – the impact of social competition on portfolio choice. European Economic Review 66 97–110.

The authors use a laboratory experiment to study how relative performance-based incentive schemes and status concerns for higher rank influence portfolio choice.  They find that both underperformers and over-performers adapt their portfolios to their current relative performance, preferring either positively or negatively skewed assets, respectively.  Interestingly, these results hold not only when relative performance matters for pay, and when it does not.  Thus, simply attaining a high performance rank appears to raise subjects’ utility.

 

Kirchler, Michael, Florian Lindner, Utz Weitzel. 2018. Rankings and risk-taking in the finance industry. Journal of Finance 73(5) 2271–2302.

The authors use a lab-in-the-field experiment to study how financial professionals'  respond to relative performance-based incentives.  They find that both rank and tournament incentives increase risk‐taking among underperforming professionals.

22.3: Addressing Ability Differences in Tournaments

Akhtari, Mitra, Natalie Bau, and Jean-William P. Laliberté. 2020  Affirmative Action and Pre-College Human Capital NBER working paper no. 27779

This paper presents evidence that, when race-based affirmative action was re-instated by court orders in three U.S. states, average SAT scores for both whites and minorities increased, while the racial gap in SAT scores declined.  These findings are consistent with the hypothesis that affirmative action increases the incentives among both racial groups to study hard in high school. 

 

Teams

 24.4:  Inducing Efficient Effort—Group Piece Rates and Group Bonuses

Barron, Daniel and Yingni Guo 2020 The Use and Misuse of Coordinated Punishments The Quarterly Journal of Economics Volume 136, Issue 1, February 2021, Pages 471–504

This paper studies a potential problem with using group punishment of ‘free riders’ to discipline agents.  When agents don’t see the efforts of all the team members, shirking agents can falsely accuse others of shirking, to prevent being reported themselves.  The problem is illustrated by a recent FBI investigation of AirBnB host who extorted customers in this way. 

 

25:  Team Production in Practice

Castagnetti, Alessandro and Eugenio Proto. 2020 “Anger and Strategic Behavior: A Level-k Analysis”  IZA discussion paper No. 13661

While anger can be helpful in combating free-riding in groups, the authors show that experimentally-induced anger impairs subjects’ capacity to think strategically in a ‘beauty contest’ game.  Interestingly, sadness (a different, negative emotion) does not have the same effect.

 

27.1:  Who Wants to Join Teams?  Ability and Self Selection

Bertoni, Marco, Giorgio Brunello, Daniele Checchi, Lorenzo Rocco 2020. Where Do I Stand? Assessing Researchers' Beliefs about Their Relative Productivity IZA discussion paper No. 13637
While the incentive to enter a competition depends on a person’s relative ability, people are not always the best judge of that.  Using data on a research grant competition, these authors found that low-productivity researchers over-estimated their own position in the productivity distribution, while high-productivity researchers did the opposite. 

Thanks for your attention, and Happy 2021 to all!   

Note:  The article descriptions in these updates are not copies of the authors’ abstracts.  While they may use text from those abstracts (and/or the article), they are my own summaries that (a) endeavor to be shorter than most abstracts, and (b) attempt to place the article in the broader context of personnel economics as a field.  I hope that you will find them helpful.