Osaka Workshop on Economics of Institutions and Organization (#144)

Abstract: This study investigates employee referral, recruitment through the current employees’ referral, and incentive pays in a framework of moral hazard with multiple workers. We first find from online survey data that adopting an employee referral programme or workers’ referring experiences are positively associated with group pays. We then construct a theoretical framework to characterize the optimal pattern of incentive scheme and recruitment management. The employer chooses either centralized hiring, where a new employee is found by the employer, or referral hiring, where a new employee is found by an incumbent employee. Consistent with the data, the employer tends to prefer referral hiring as joint performance evaluation is exhibited for the incumbent employee to work hard than relative performance evaluation. We also demonstrate that due to the risk premium paid for the incumbent employee, referral hiring is likely to be preferred when the performance of the incumbent employee is less uncertain.Abstract：Akifumi Ishihara