nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2015‒01‒09
twenty papers chosen by
Tommaso Reggiani
Universität zu Köln

  1. When pressure sinks performance: Evidence from diving competitions By Eleni Garbi; Christos Genakos; Mario Pagliero
  2. The Effect of Competition on Managers’ Compensation: Evidence From a Quasi-natural Experiment By Fernandes, Ana; Ferreira, Priscila; Winters, L. Alan
  3. Human Capital and Optimal Redistribution By Koeniger, Winfried; Prat, Julien
  4. Does the Unemployement Benefit Institution Affect the Productivity of Workers? Evidence from a Field Experiment By Blanco, M.; Dalton, P.S.; Vargas, J.F.
  5. Are Female Top Managers Really Paid Less? By Geiler, P.H.M.; Renneboog, L.D.R.
  6. Merger Performance and Managerial Incentives By Matthias Kräkel and Daniel Müller
  7. The Biocultural Origins of Human Capital Formation By Galor, Oded; Klemp, Marc P B
  8. Managerial Attention and Worker Engagement By Halac, Marina; Prat, Andrea
  9. Motivating Knowledge Agents: Can Incentive Pay Overcome Social Distance? By Erlend Berg; Maitreesh Ghatak; R Manjula; D Rajasekhar; Sanchari Roy
  10. Optimal Effort Incentives in Dynamic Tournaments By Klein, Arnd Heinrich; Schmutzler, Armin
  11. Gender and the Labor Market: What Have We Learned from Field and Lab Experiments? By Azmat, Ghazala; Petrongolo, Barbara
  12. CEO fitness and firm value By Limbach, Peter; Sonnenburg, Florian
  13. Incentive Pay and Bank Risk-Taking:Evidence from Austrian, German, and Swiss Banks By Efing, Matthias; Hau, Harald; Kampkötter, Patrick; Steinbrecher, Johannes
  14. Endogenous Contractual Externalities By Ozdenoren, Emre; Yuan, Kathy
  15. Does performance disclosure influence physicians’ medical decisions? An experimental study* By Godager, Geir; Hennig-Schmidt, Heike; Iversen, Tor
  16. The Effect of Female Leadership on Establishment and Employee Outcomes: Evidence from Linked Employer-Employee Data By Gagliarducci, Stefano; Paserman, M. Daniele
  17. Health information, treatment, and worker productivity : experimental evidence from malaria testing and treatment among Nigerian sugarcane cutters By Dillon, Andrew; Friedman, Jed; Serneels, Pieter
  18. Locus of Control and the Labor Market By Cobb-Clark, Deborah A.
  19. Overconfidence, Effort, and Investment (Revised version of CentER DP 2013-035) By Pikulina, E.S.; Renneboog, L.D.R.; Tobler, P.N.
  20. Assumptions for a combination of public value and performance management By Salvatore Russo

  1. By: Eleni Garbi; Christos Genakos; Mario Pagliero
    Abstract: Tournaments are designed to enhance participants’ effort and productivity. However, ranking near the top may increase psychological pressure and reduce performance. We empirically study the impact of interim rank on performance using data from international diving tournaments. We find that competitors systematically underperform when ranked closer to the top, despite higher incentives to perform well.
    Keywords: Tournaments, incentives, choking under pressure.
    JEL: J24 L83 M52 Z13
    Date: 2014
  2. By: Fernandes, Ana; Ferreira, Priscila; Winters, L. Alan
    Abstract: This paper studies the effect of competition on executive compensation. We estimate the effect of increased product market competition on the performance-pay sensitivity of CEOs, and contrast it with the effect for department managers and other workers in the corporation. We use a recent reform that simplified firm entry regulation in Portugal as a quasi-natural experiment. The empirical strategy exploits the staggered implementation of the reform across municipalities. Using linked employer-employee data for the universe of workers and firms, we show that increased product market competition, following the reform, decreased the sensitivity of pay to performance of CEOs, with no significant effects found for other managers or workers. These findings are consistent with existing theoretical results in a principal-agent framework that a fall in entry costs leads to weaker managerial incentives.
    Keywords: entry deregulation; executive compensation; performance-related pay; product market competition
    JEL: J31 J33 M52
    Date: 2014–07
  3. By: Koeniger, Winfried (University of St. Gallen); Prat, Julien (CREST)
    Abstract: We characterize optimal redistribution in a dynastic family model with human capital. We show how a government can improve the trade-off between equality and incentives by changing the amount of observable human capital. We provide an intuitive decomposition for the wedge between human-capital investment in the laissez faire and the social optimum. This wedge differs from the wedge for bequests because human capital carries risk: its returns depend on the non-diversifiable risk of children's ability. Thus, human capital investment is encouraged more than bequests in the social optimum if human capital is a bad hedge for consumption risk.
    Keywords: optimal taxation, human capital
    JEL: E24 H21 I22 J24
    Date: 2014–11
  4. By: Blanco, M.; Dalton, P.S. (Tilburg University, Center For Economic Research); Vargas, J.F.
    Abstract: Abstract: We investigate whether and how the type of unemployment bene t institution affects productivity. We designed a field experiment to compare workers' productivity under a welfare system, where the unemployed receive an unconditional monetary transfer, with their productivity under a workfare system, where the transfer is received conditional on the unemployed spending some time on ancillary activities. First, we fi nd that having an unemployment bene fit institution, regardless of whether it makes transfers conditional or unconditional, increases workers' productivity. Second, we find that productivity is higher under Welfare than under Workfare. Becoming unemployed under Welfare comes at the psychological cost of a drop in self-esteem, presumably due to the shame or stigma associated with receiving an unconditional unemployment benefi t. We document the empirical relevance of precisely this channel. The differences we observe in productivity suggest that this psychological cost acts as an extra non- monetary incentive for workers under Welfare to put a higher effort in their work.
    Keywords: Unemployment Benefi ts; Workfare; Productivity; Self-esteem; Shame
    JEL: J24 J65 J45
    Date: 2013
  5. By: Geiler, P.H.M. (Tilburg University, Center For Economic Research); Renneboog, L.D.R. (Tilburg University, Center For Economic Research)
    Abstract: Abstract: Are female top managers paid less than their male counterparts? Is the gender gap higher in male-dominated industries? What effect on pay do female non-executive directors and remuneration consultants exert? While we find no pay gap for the figure-head (CEO), there is strong pay discrimination at the level of the other top managers. These female executive directors earn over a five-year tenure period £1.3 million less than male directors, and this pay gap is visible for all components of pay. The pay gap is lower for executives in firms with one or more female non-executives. Female executives in ‘male’ industries receive less remuneration than male executives but the gender pay gap is smaller. The advice of top remuneration consultants does not reduce the pay gap.
    Keywords: executive compensation; gender pay gap; gender discrimination; pay-for-performance; glass ceiling; glass cliff
    JEL: J31 J33 M52 G30
    Date: 2014
  6. By: Matthias Kräkel and Daniel Müller
    Abstract: We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low synergies—even when targets with high synergies are available—to obtain high-powered incentives and, hence, a high personal income at the merger-management stage.
    Keywords: acquisition; merger; moral hazard
    JEL: D82 D86 G34
  7. By: Galor, Oded; Klemp, Marc P B
    Abstract: This research explores the biocultural origins of human capital formation. It presents the first evidence that moderate fecundity and thus predisposition towards investment in child quality was conducive for long-run reproductive success within the human species. Using an extensive genealogical record for nearly half a million individuals in Quebec from the sixteenth to the eighteenth centuries, the study explores the effect of fecundity on the number of descendants of early inhabitants in the subsequent four generations. The research exploits variation in the random component of the time interval between the date of first marriage and the first birth to establish that while higher fecundity is associated with a larger number of children, an intermediate level maximizes long-run reproductive success. Moreover, the observed hump-shaped effect of fecundity on long-run reproductive success reflects the negative effect of higher fecundity on the quality of each child. The finding further indicates that the optimal level of fecundity was below the population median, lending credence to the hypothesis that during the Malthusian epoch, the forces of natural selection favored individuals with lower fecundity and thus larger predisposition towards child quality, contributing to human capital formation, the onset of the demographic transition and the evolution of societies from an epoch of stagnation to sustained economic growth.
    Keywords: demography; economic growth; evolution; fecundity; human capital formation; long-run reproductive success; natural selection; quantity-quality trade-off
    JEL: J10 N30 O10
    Date: 2014–09
  8. By: Halac, Marina; Prat, Andrea
    Abstract: We study a dynamic agency problem with two-sided moral hazard: the worker chooses whether to exert effort or shirk; the manager chooses whether to invest in an attention technology to recognize worker performance. In equilibrium the worker uses past recognition to infer managerial attention. An engagement trap arises: absent recent recognition, both worker effort and managerial investment decrease, making a return to high productivity less likely as time passes. In a sample of ex-ante identical firms, firm performance, managerial quality, and worker engagement display heterogeneity across firms, positive correlation, and persistence over time.
    Date: 2014–06
  9. By: Erlend Berg; Maitreesh Ghatak; R Manjula; D Rajasekhar; Sanchari Roy
    Abstract: This paper studies the interaction of incentive pay and social distance in the dissemination of information. We analyse theoretically as well as empirically the effect of incentive pay when agents have pro-social objectives, but also preferences over dealing with one social group relative to another. In a randomised field experiment undertaken across 151 villages in South India, local agents were hired to spread information about a public health insurance programme. Relative to at pay, incentive pay improves knowledge transmission to households that are socially distant from the agent, but not to households similar to the agent.
    Keywords: public services, information constraints, incentive pay, social proximity, knowledge transmission
    JEL: C93 D83 I38 M52 O15 Z13
    Date: 2013–03
  10. By: Klein, Arnd Heinrich; Schmutzler, Armin
    Abstract: This paper analyzes two-stage rank-order tournaments. A principal decides (i) how to spread prize money across the two periods, (ii) how to weigh performance in the two periods when awarding the second period prize, and (iii) whether to reveal performance after the first period. The information revelation policy depends exclusively on properties of the effort cost function. The principal always puts a positive weight on first-period performance in the second period. The size of the weight and the optimal prizes depend on properties of the observation error distribution; they should be chosen so as to strike a balance between the competitiveness of first- and second-period tournaments. In particular, the principal sets no first-period prize unless the observations in period one are considerably more precise than in period two.
    Keywords: dynamic tournaments; effort incentives; information revelation; repeated contests
    JEL: D02 D44
    Date: 2014–10
  11. By: Azmat, Ghazala; Petrongolo, Barbara
    Abstract: We discuss the contribution of the experimental literature to the understanding of both traditional and previously unexplored dimensions of gender differences and discuss their bearings on labor market outcomes. Experiments have offered new findings on gender discrimination, and while they have identified a bias against hiring women in some labor market segments, the discrimination detected in field experiments is less pervasive than that implied by the regression approach. Experiments have also offered new insights into gender differences in preferences: women appear to gain less from negotiation, have lower preferences than men for risk and competition, and may be more sensitive to social cues. These gender differences in preferences also have implications in group settings, whereby the gender composition of a group affects team decisions and performance. Most of the evidence on gender traits comes from the lab, and key open questions remain as to the source of gender preferences—nature versus nurture, or their interaction—and their role, if any, in the workplace.
    Keywords: Discrimination; Field experiments; Gender; Gender preferences; Lab experiments
    JEL: C91 C92 C93 J16 J24 J71
    Date: 2014–05
  12. By: Limbach, Peter; Sonnenburg, Florian
    Abstract: We find that CEO fitness positively affects firm value (Tobin's Q). For each of the years 2001 to 2011, we define S&P 1500 CEOs as fit if they finish a marathon. Fit CEOs are associated with higher firm profitability and M&A announcement returns. Effects on firm value are strongest for CEOs with above-median age, above-median tenure and high workload, consistent with the positive impact of fitness on cognitive functions, performance and stress coping found in the literature. Our findings are robust to various tests for endogeneity, including CEOfirm fixed effects, time-varying firm and industry effects, reverse causality, permutation tests, and CEO sudden deaths. Results can explain the importance of fitness in the labor market and the trend among CEOs to stay fit.
    Keywords: CEO fitness,CEO heterogeneity,firm profitability and value,mergers and acquisitions,stress and workload
    JEL: G32 G34 J24
    Date: 2014
  13. By: Efing, Matthias; Hau, Harald; Kampkötter, Patrick; Steinbrecher, Johannes
    Abstract: We use payroll data on 1.2 million bank employee years in the Austrian, German, and Swiss banking sector to identify incentive pay in the critical banking segments of treasury/capital market management and investment banking for 66 banks. We document an economically significant correlation of incentive pay with both the level and volatility of bank trading income particularly for the pre-crisis period 2003-7 for which incentive pay was strongest. This result is robust if we instrument the bonus share in the capital markets divisions with the strength of incentive pay in unrelated bank divisions like retail banking. Moreover, pre-crisis incentive pay appears too strong for an optimal trade-off between trading income and risk which maximizes the NPV of trading income.
    Keywords: Bank Risk; Bonus Payments; Incentive Pay; Trading Income
    JEL: D22 G20 G21
    Date: 2014–10
  14. By: Ozdenoren, Emre; Yuan, Kathy
    Abstract: We study ffort and risk-taking behaviour in an economy with a continuum of principal-agent pairs where each agent exerts costly hidden effort. When the industry productivity is uncertain, agents have motivations to match the industry average effort, which results in contractual externalities. Contractual externalities have welfare changing effects when the information friction is correlated and the industry risk is not revealed. This is because principals do not internalize the impact of their choice on other principals' endogenous industry risk exposure. Relative to the second best, if the expected productivity is high, risk-averse principals over-incentivise their own agents, triggering a rat race in effort exertion, resulting in over-investment in effort and excessive exposure to industry risks relative to the second best. The opposite occurs when the expected productivity is low.
    Keywords: boom-bust effort exertion; contractual externalities; relative and absolute performance contracts; risk taking
    JEL: D86 G01 G30
    Date: 2014–07
  15. By: Godager, Geir (Department of Health Management and Health Economics); Hennig-Schmidt, Heike (Department of Health Management and Health Economics); Iversen, Tor (Department of Health Management and Health Economics)
    Abstract: Quality improvements in markets for medical care are key objectives in any Health reform. An important question is whether disclosing physicians’ performance can contribute to achieving these goals. Due to the asymmetric information inherent in medical markets, one may argue that changes in the information structure are likely to influence the environment in which health care providers operate. In a Laboratory experiment with medical students that mimics a physician decision-making environment we analyze the effect of disclosing performance information to peers. We find that making performance transparent has a positive impact in that significantly higher total patient benefits are generated than under a regime where physician performance is private information. Also, significantly more patients receive benefit-maximizing treatment. We discuss policy implications of our findings
    Keywords: Physician payment system; laboratory experiment; incentives; transparency; fee-for-service; information and product quality
    JEL: C91 H40 I11 J33 L15
    Date: 2014–11–27
  16. By: Gagliarducci, Stefano (University of Rome Tor Vergata); Paserman, M. Daniele (Boston University)
    Abstract: In this paper we use a large linked employer-employee data set on German establishments between 1993 and 2012 to investigate how the gender composition of the top layer of management affects a variety of establishment and worker outcomes. We use two different measures to identify the gender composition of the top layer based on direct survey data: the fraction of women among top managers, and the fraction of women among working proprietors. We document the following facts: a) There is a strong negative association between the fraction of women in the top layer of management and several establishment outcomes, among them business volume, investment, total wage bill per worker, total employment, and turnover; b) Establishments with a high fraction of women in the top layer of management are more likely to implement female-friendly policies, such as providing childcare facilities or promoting and mentoring female junior staff; c) The fraction of women in the top layer of management is also negatively associated with employment and wages, both male and female, full-time and part-time. However, all of these associations vanish when we include establishment fixed effects and establishment-specific time trends. This reveals a substantial sorting of female managers across establishments: small and less productive establishments that invest less, pay their employees lower wages, but are more female-friendly are more likely to be led by women.
    Keywords: gender, firm performance, employer-employee data
    JEL: D22 J16 J70 M50
    Date: 2014–11
  17. By: Dillon, Andrew; Friedman, Jed; Serneels, Pieter
    Abstract: Agricultural and other physically demanding sectors are important sources of growth in developing countries but prevalent diseases such as malaria adversely impact the productivity, labor supply, and choice of job tasks among workers by reducing physical capacity. This study identifies the impact of malaria on worker earnings, labor supply, and daily productivity by randomizing the temporal order at which piece-rate workers at a large sugarcane plantation in Nigeria are offered malaria testing and treatment. The results indicate a significant and substantial intent to treat effect of the intervention -- the offer of a workplace-based malaria testing and treatment program increases worker earnings by approximately 10 percent over the weeks following the offer. The study further investigates theeffect of health information by contrasting program effects by workers'revealed health status. For workers who test positive for malaria, the treatment of illness increases labor supply, leading to higher earnings. For workers who test negative, and especially for those workers most likely to be surprised by the healthy diagnosis, the health information also leads to increased earnings via increased productivity. Possible mechanisms for this response include selection into higher return tasks within the plantation as a result of changes in the perceived cost of effort. A model of the worker labor decision that allows health expectations partly to determine the supply of effort suggests that, in endemic settings with poor quality health services, inaccurate health perceptions may lead workers to suboptimal labor allocation decisions. The results underline the importance of medical treatment, but also of access to improved information about one's health status, as the absence of either may lead workers to deliver lower effort in lower return jobs.
    Keywords: Health Monitoring&Evaluation,Disease Control&Prevention,Labor Markets,Labor Policies,Work&Working Conditions
    Date: 2014–11–01
  18. By: Cobb-Clark, Deborah A. (University of Melbourne)
    Abstract: This paper reviews the role of locus of control in the labor market. I begin with a discussion of the conceptual origins of locus of control, including its relationship to related concepts such as self-efficacy, motivation, and self-control. The relationship between locus of control and labor market success is then summarized. In doing so, I pay careful attention to what we know about three potential mechanisms – human capital investments, hiring decisions, and optimal incentive contracts – through which locus of control might operate. Finally, the broader implications of these relationships for public policy and future research are discussed.
    Keywords: locus of control, labor market, behavioral economics
    JEL: J01 J08
    Date: 2014–11
  19. By: Pikulina, E.S. (Tilburg University, Center For Economic Research); Renneboog, L.D.R. (Tilburg University, Center For Economic Research); Tobler, P.N. (Tilburg University, Center For Economic Research)
    Abstract: A positive relation between confidence and effort/investment provision has been theoretically justified and practically assumed in the literature, but has not been thoroughly investigated. We test and confirm this positive relation between direct measures of confidence and choice of effort or investment. More precisely, strong overconfidence results in excess investment of effort and money, underconfidence induces insufficient effort provision and underinvestment, and moderate overconfidence leads to accurate decisions. Our experimental results can be generalized as they are based on different subject pools (financial professionals and students), media (computer-, paper-, and web-based), and types of effort (real mental effort and monetary effort, i.e. investment).
    Keywords: Self-confidence; Overconfidence; Judgmental Bias; Overinvestment; Investment Choice; Effort
    JEL: G11 J22
    Date: 2014
  20. By: Salvatore Russo (Dept. of Management, Università Ca' Foscari Venice)
    Abstract: The paper is the result of a series of reflections on the evolution of the perspectives of public management theories and the possible contribution given by the public value. In particular, it focuses on a common component observed in the reform processes, with the use of performance management. An accurate observation of the model's performance management appears to have elements that could simplify the pursuit of public value, through an adaptation of the original model proposed by Moore.
    Keywords: public value, public management, performance management
    JEL: M40
    Date: 2014–12

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