nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2014‒11‒22
thirteen papers chosen by
Tommaso Reggiani
Universität zu Köln

  1. Biased Supervision By Josse Delfgaauw; Michiel Souverijn
  2. Job mission as a substitute for monetary incentives: experimental evidence By Lea Cassar
  3. Money talks - Paying physicians for performance By Claudia Keser; Emmanuel Peterle; Cornelius Schnitzler
  4. The relation between economic and non-economic incentives to work and employment chances among the unemployed By Nordlund, Madelende; Strandh, Mattias
  5. Wages, Human Capital, and the Allocation of Labor across Sectors By Todd Schoellman; Berthold Herrendorf
  6. Does Executive Compensation Reflect Default Risk? By C, Loran; Eckbo, Espen; Lu, Ching-Chih
  7. On the Causal Effects of Selective Admission Policies on Students’ Performances. Evidence from a Quasi-experiment in a Large Italian University By Vincenzo Carrieri; Marcello D'Amato; Roberto Zotti
  8. The Risks and Tricks in Public-Private Partnerships By Elisabetta Iossa; Giancarlo Spagnolo; Mercedes Vellez
  9. Innovative Strategies in Technical and Vocational Education and Training for Accelerated Human Resource Development in South Asia By Asian Development Bank (ADB); ; ;
  10. A theory of sanctions: Objectives, degree of heterogeneity, and growth potential matter for optimal use of carrot or stick By Yoshio Kamijo
  11. Shirking, Monitoring, and Risk Attitudes By Seeun Jung; Kenneth Houngbedji
  12. Optimal Redistribution and Monitoring of Labor Effort By Zoutman, Floris T.; Jacobs, Bas
  13. Paying Out and Crowding Out? The Globalisation of Higher Education By Stephen Machin; Richard Murphy

  1. By: Josse Delfgaauw (Erasmus University Rotterdam); Michiel Souverijn (Erasmus University Rotterdam, the Netherlands)
    Abstract: When verifiable performance measures are imperfect, organizations often resort to subjective performance pay. This may give supervisors the power to direct employees towards tasks that mainly benefit the supervisor rather than the organization. We cast a principal-supervisor-agent model in a multitask setting, where the supervisor has an intrinsic preference towards specific tasks. We show that subjective performance pay based on evaluation by a biased supervisor has the same distorting effect on the agent's effort allocation as incentive pay based on an incongruent performance measure. If the principal can combine incongruent performance measures with biased supervision, the distortion in the agent's efforts is mitigated, but cannot always be eliminated. We apply our results to the choice between specialist and generalist middle managers, where a trade-off between expertise and bias may arise.
    Keywords: subjective performance evaluation, middle managers, incentives, multitasking
    JEL: J24 M12 M52
    Date: 2014–08–25
  2. By: Lea Cassar
    Abstract: Are monetary and non-monetary incentives used as substitutes in motivating effort? I address this question in a laboratory experiment in which the choice of the job charac- teristics (i.e., the mission) is part of the compensation package that principals can use to influence agents' effort. Principals offer contracts that specify a piece rate and a charity - which can be either the preferred charity of the agent, or the one of the principal. The agents then exert a level of effort that generates a profit to the principal and a dona- tion to the specified charity. My results show that the agents exert more effort than the level that maximizes their own pecuniary payoff in order to benefit the charity, especially their preferred one. The principals take advantage of this intrinsic motivation by offering lower piece rates and by using the choice of the charity as a substitute to motivate effort. However, I also find that because of fairness considerations, the majority of principals are reluctant to lower the piece rate below a fair threshold, making the substitution between monetary and non-monetary incentives imperfect. These findings have implications for the design of incentives in mission-oriented organizations and contribute to our understanding of job satisfaction and wage differentials across organizations and sectors.
    Keywords: Mission, intrinsic motivation, incentives, experiment
    JEL: C92 J33 M52 M55
    Date: 2014–10
  3. By: Claudia Keser; Emmanuel Peterle; Cornelius Schnitzler
    Abstract: Pay-for-performance attempts to tie physician payment to quality of care. In a controlled laboratory experiment, we investigate the effect of pay-for-performance on physician provision behavior and patient benefit. For that purpose, we compare a traditional fee-for-service payment system to a hybrid system that blends fee-for-service and pay-for-performance incentives. Physicians are found to respond to pay-for-performance incentives. Approximately 89 percent of the participants qualify for a pay-for-performance bonus payment in the experiment. It follows that a patient treated under the hybrid payment system is significantly more likely to receive optimal treatment than a similar fee-for-service patient. Pay-for-performance generally tends to alleviate over- and under-provision of medical treatment relative to fee-for-service. Irrespective of the payment system, we observe unethical treatment behavior, i.e., the provision of medical services with zero benefit to the patient.
    Keywords: Experimental economics; physician remuneration; pay-for-performance (P4P).,
    Date: 2014–10–01
  4. By: Nordlund, Madelende (The Department of Sociology, Umeå University); Strandh, Mattias (The Department of Sociology, Umeå University)
    Abstract: In this study we address the relationship of self-reported reservation wages (RW) (the lowest offered income at which an unemployed persona will accept a job offer), the income replacement rate of unemployment benefit (IRUB) and psychosocial need for employment with job search intensity and reemployment probabilities among unemployed in Sweden in 1996-1997. The results indicate that the RWs reported by the group that we observe over time were relatively stable, but strongly related to IRUB and both the gender and age of the unemployed individuals. Interestingly, IRUB was related to search intensity, but not reemployment probabilities, while the RW was related to reemployment probabilities but not search intensity. These findings suggest that IRUB might be a poor proxy for RWs, in some situations at least. In sharp contrast, psychosocial incentives appeared to be related to both search intensity and reemployment probabilities, indicating a need for a richer understanding of search behaviour and unemployment durations. The data also indicate that the roles of search behaviour and incentives for reemployment probabilities may be exaggerated which, at least under the relatively depressed labour market conditions our data represented, appeared to be much more strongly related to human capital and demand for labour for our study population.
    Keywords: Reservation wage; income replacement rate; psychosocial need of work; job search intensity; human capital; job-chances
    JEL: J64
    Date: 2014–10–14
  5. By: Todd Schoellman (Arizona State University); Berthold Herrendorf (Arizona State University)
    Abstract: We document for nine countries ranging from rich (Canada, U.S.) to poor (India, Indonesia) that average wages are higher in non–agriculture than in agriculture. We measure sectoral human capital and find that it accounts for the entire wage gap in the U.S. and most of the wage gaps elsewhere. We develop a multi–sector model that explains these finding if: (i) Mincer returns to schooling are equal in both sectors; (ii) more able workers sort into non–agriculture; (iii) distortions to the allocation of labor between sectors are negligible in the U.S. and small elsewhere.
    Date: 2014
  6. By: C, Loran (UiS); Eckbo, Espen (Darthmouth College); Lu, Ching-Chih (National Chengchi University)
    Abstract: We analyze whether executive compensation reflects firm default risk, measured by distance to default of Merton (1974). Using a large panel of firms, we explore several empirical frameworks. In least squares, fixed effects and quantile regression settings, default risk and volatility possess significant explanatory power for compensation. The signs of the estimated coefficients are consistent with higher compensation for higher risk-bearing--managers of firms with higher default risk are paid more. In the benchmark models, estimates for default risk are quite small, indicating effects on average compensation of around $9,000. The corresponding figure for the upper 5-percentile of CEOs is $50,000. Volatility has much larger average effects, in excess of $25 million, with upper 5-percent effects above $150 million. In a partial identification framework, compensation is systematically associated with default risk. Moving to a higher default risk firm raises compensation by at least $.96%, corresponding to around $70,000 for average CEOs, and above $400,000 for the top 5-percentile. The largest effect applies for moving into the highest default risk firms. For such firms, the treatment effect exceeds $180,000 for average CEOs, and for the top 5-percent, the effect is well above $1 million. Conditional means exhibit monotonicity, suggesting that compensation is amenable to a treatment response approach. Surprisingly, when we utilize an instrumental variables approach, an increase in default risk reduces total compensation. Thus our results uncover a complex but powerful link between firm risk and CEO compensation, which may make it difficult to regulate compensation by means such as `Say-on-Pay'.
    Keywords: Default; Executive Compensation; Treatment Response; Partial Identification; Volatility
    JEL: A10
    Date: 2014–09–11
  7. By: Vincenzo Carrieri (Università di Salerno, CELPE and HEDG.); Marcello D'Amato (Università di Salerno, CELPE and CSEF); Roberto Zotti (Università di Salerno)
    Abstract: We present a dynamic OLG model of educational signaling, inequality and mobility with missing credit markets. Agents are characterized by two sources of unobserved heterogeneity: ability and parental income, consistent with empirical evidence on returns to schooling. Both quantity and quality of human capital evolve endogenously. The model generates a Kuznets inverted-U pattern in skill premia similar to historical US and UK experience. In the first (resp. later) phase the skill premium rises (falls), social returns to education exceed (falls below) private returns: under-investment owing to financial imperfections dominate (are dominated by) over-investment owing to signaling distortions. There always exist Pareto-improving policy interventions reallocating education between poor and rich children. JEL Classification: Tertiary education, Selective test based admission policies; students’ performances; peer effects; quasiexperiment
    Keywords: I21; I28; C21
    Date: 2014–11–06
  8. By: Elisabetta Iossa; Giancarlo Spagnolo; Mercedes Vellez
    Abstract: PPPs have been implemented broadly around the world in the infrastructure sector -water and sanitation, transports, energy, and telecommunications- and, more recently, in the provision of public services -education, health, prisons, and water and waste management. Key aspects of the contract design, such as risk allocation and payment mechanisms, significantly affect the PPP outcomes because they affect the incentives of the public and private parties to deliver a public service that satisfies user needs. Nevertheless, contractual provisions used in practice often do not implement the efficient risk allocation. In this paper, we discuss the crucial role of the public sector in designing and imposing standardized contracts, monitoring their compliance, disclosing contractual information to the general public, and transferring risks to the private sector in order to reduce the likelihood of PPP performance failure.
    Keywords: Concession contracts, Incentives, Public Private Partnerships, Risk Allocation
    JEL: D02 D20 D82 L33 L38
    Date: 2013
  9. By: Asian Development Bank (ADB); (South Asia Department, ADB); ;
    Abstract: This publication highlights priorities and strategies in meeting current and emerging needs for skills development in South Asia. The report is in line with the Asian Development Bank’s effort to support its developing member countries’ priorities toward global competitiveness, increased productivity, and inclusive growth. It also identifies key issues, constraints and areas of improvement in making skills training more responsive to emerging labor market needs in South Asia as an important factor in sustaining high economic growth. The report was completed in 2012 under the Australian AID-supported Phase 1 of Subproject 11 (Innovative Strategies for Accelerated Human Resource Development) of RETA 6337 (Development Partnership Program for South Asia).
    Keywords: education, technical skills, vocational skills, labor market, gender inequality, human resources, human capital, innovation, knowledge, skills, human development index, secondary education, labor force, skilling, upskilling, TVET, skills development, training programs, higher education, youth, strategies and innovations
    Date: 2014–05
  10. By: Yoshio Kamijo (Kochi University of Technology)
    Abstract: While most economic literature on punishment and reward follows an experimental study on a symmetric version of a public goods game, we theoretically study sanction institutions by focusing on an asymmetric public goods game. Using a model for a private-value all-pay auction, we find that (1) the reward (punishment) is more effective to motivate people with greater (less) ability than median ability, (2) to improve the total effort, the reward (punishment) is better for more (less) heterogeneous people, and (3) reward tends to be optimal in the long run under the dynamics of group diversity change caused by enforced sanctions.
    Date: 2014–10
  11. By: Seeun Jung; Kenneth Houngbedji (Université de Cergy-Pontoise, THEMA; Paris School of Economics)
    Abstract: This paper studies the effect of risk attitudes on effort under different monitor- ing schemes. It uses a theoretical model which relaxes the assumption of agents being risk neutral, and investigates changes of effort as monitoring varies. The pre- dictions of the theoretical model are tested using an original experimental setting where the level of risk attitudes is measured and monitoring rates vary exogenously. Our results show that shirking decreases with risk aversion, being female, and mon- itoring. Moreover, monitoring is more effective to curtail shirking behaviours for subjects who are less risk averse, although the size of the impact is rather small.
    Keywords: Shirking; Monitoring; Risk under Uncertainty; Effort
    JEL: C91 D61 D81 D86
    Date: 2014
  12. By: Zoutman, Floris T. (Dept. of Business and Management Science, Norwegian School of Economics); Jacobs, Bas (Dept. of Economics, Erasmus University Rotterdam)
    Abstract: This paper extends the Mirrlees (1971) model of optimal non-linear income taxation with a monitoring technology that allows the government to verify labor effort at a positive, but non-infinite cost. We analyze the joint determination of the non-linear monitoring and tax schedules and the conditions under which these can be implemented. Monitoring of labor effort reduces the distortions created by income taxation and raises optimal marginal tax rates, possibly above 100 percent. The optimal intensity of monitoring increases with the marginal tax rate and the labor-supply elasticity. Our simulations demonstrate that monitoring strongly alleviates the trade-off between equity and efficiency as welfare gains of monitoring are around 1.4 percent of total output. The optimal intensity of monitoring follows a U-shaped pattern, similar to that of optimal marginal tax rates. Our paper can explain why large welfare states optimally rely on work-dependent tax credits, active labormarket policies, benefit sanctions and work bonuses in welfare programs to redistribute income efficiently.
    Keywords: Optimal non-linear taxation; monitoring; costly verification ability/effort; optimal redistribution
    JEL: H21 H24 H26 H31
    Date: 2014–09–24
  13. By: Stephen Machin; Richard Murphy
    Abstract: We investigate the rapid influx of overseas students into UK higher education and the impact on the number of domestic students. Using administrative data since 1994/5, we find no evidence of crowd out of domestic undergraduate students and indications of increases in the domestic numbers of postgraduate students as overseas enrolments have grown. We interpret this as a cross-subsidisation and establish causal findings using two methods. Firstly, we use the historical share of students from a sending country attending a university department as a shift-share instrument to predict enrolment patterns. Secondly, we use a change in Chinese visa regulations and exchange rates in combination with strong subject preferences as a predictor of overseas student growth.
    Keywords: Overseas students, crowding out
    JEL: I20 I21 I28
    Date: 2014–09

This nep-hrm issue is ©2014 by Tommaso Reggiani. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.