“Robust Delegation” with Tan Gan, and Ju Hu. (online appendix)
ABSTRACT
We study delegation rules by principals uninformed of the underlying state (external uncertainty) and the preferences of better-informed agents (internal uncertainty). Evaluating delegation sets with a max–min criterion, we show that in multidimensional environments optimal delegation sets are simple: for broad classes of preference uncertainty, optimal delegation sets are convex. Thus, interval delegation is always (robustly) optimal when the action space is unidimensional. Internal uncertainty can justify greater discretion, allowing actions that are never optimal for the principal in any state; and a version of the ally principle holds: alignment along enough dimensions implies unconstrained delegation along all dimensions.
“Firm Productivity and the Internal-Versus-External Hiring Decision” with Jed DeVaro, Antti Kauhanen, and Nelli Valmari.
ABSTRACT
Evidence from a broad, employer-employee matched panel from Finland reveals that high-productivity firms are more likely than low-productivity firms to fill job vacancies via internal hiring (versus external recruitment). This result is interpreted via a new theoretical model in which the superior management practices of high-productivity firms enable their managers to screen internal candidates more accurately when recruiting across multiple applicant pools to fill a vacancy. More internal hiring usually results. The model’s further predictions are empirically supported, e.g., internal hiring rates increase in applicant pool size, education level of the internal pool, and managerial performance and education.
“Recruiting and Selecting for Fit”
ABSTRACT
This paper studies employer recruitment and selection of job applicants when productivity is match-specific. Job seekers have private, noisy estimates of match value and firms perform noisy interviews. A job seeker's application depends on her perceived hiring probability given hiring standards, while firms consider the applicant pool's composition when setting hiring standards. Improvements in either the accuracy of job-seekers' estimates of fit or in the accuracy of a firm's interview can lower profits when it dissuades applications. I show that firms shun perfect tests of fit and avoid advertising to poorly informed job seekers for fear of dissuading suitable job seekers from applying. The model explains the adoption of previously unused costless testing technologies as application costs fall (e.g., following a move to online applications).
“Shared Control and Strategic Communication”.
ABSTRACT
This paper studies the optimal allocation of decision rights between an uninformed principal and an informed agent when interdependent activities need to be adapted to local conditions. While the principal cares only about overall profits the agent may favor higher, or lower, levels for each activity than the profit-maximizing level. The principal has limited commitment power and can only commit to an ex-ante allocation of decision rights. Whenever the principal retains some (or all) decision rights the agent communicates his information strategically, i.e. via cheap talk. We show that if activities are complementary the principal can always improve the informativeness of communication by sharing control with the agent, while sharing control over activities that interact as substitutes always worsens communication. As a result of this communication advantage, sharing control over complementary activities can be optimal, while control over activities that interact as substitutes is optimally allocated to the same party.