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Think About the Future and Wait
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.ORCID iD: 0000-0002-7295-7202
2016 (English)Report (Other academic)
Abstract [en]

Constructing a continuous-time principle-agent model we model two types of agents than strive to complete a project by a deadline set by the principal. Project completion is modeled using a Poisson process, and the agents may postpone effort, as not to accrue costs early on. Both agent types exhibit this behavior, but use different decision rules, and we look at the first-best under perfect monitoring, as well as second-best under hidden action. We then show that a rational agent must be more efficient than the principal, by some factor, in order to be considered for the contract. Lastly we show that the principal may increase its profit under hidden action, by sequentially contracting two different agents, in effect firing the first if it does not finish the job by a deadline set earlier than the hard deadline when the principal needs the project completed.

Place, publisher, year, edition, pages
Umeå, 2016. , 33 p.
Series
Umeå economic studies, ISSN 0348-1018 ; 937
Keyword [en]
delegated search, principal-agent, matching, incentives, continuous-time, waiting
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:umu:diva-124594OAI: oai:DiVA.org:umu-124594DiVA: diva2:953316
Available from: 2016-08-17 Created: 2016-08-17 Last updated: 2016-08-17
In thesis
1. Essays on Delegated Search and Temporary Work Agencies
Open this publication in new window or tab >>Essays on Delegated Search and Temporary Work Agencies
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Alternative title[sv]
Essäer om delegerad sökning och bemanningsföretag
Abstract [en]

Paper [I] models a game, where two temporary work agencies (TWAs) compete to fill a vacancy at a client firm (CF). They simultaneously choose how much effort to expend, based on their expectation of how good their opponent’s best candidate will be. I then show that this will make the TWAs overconfident, as the rational way of judging your own probability of winning is not looking at the opponents expected best, but comparing how much effort your opponent will expend.

Paper [II] examines the misaligned incentives in the temporary work agency sector, where we first look at pure recruiting contracts, that either require payment on delivery, or payment on some specified point in time. We then look at the incentives of recruit-and-rent contracts, where the worker is leased to the client firm. We assume that the better the worker, the higher the probability that the client firm is going to want to hire him/her. If that happens then the TWA will no longer get revenues from said worker, incentivizing the TWA to not always deliver the first match it finds, if it is too good. Lastly we look at how competition can dampen this perverse incentive.

Paper [III] models the waiting behavior that can occur if a TWA is contracted to find a worker for a specific time far in the future; the TWA will postpone effort. This behavior is modeled for two types of TWAs; one that is rational and plans ahead, and another that does not plan ahead at all, but instead only looks at the immediate future. I find that the one that only looks at the immediate future starts exerting effort earlier than the planner. After looking at optimal contracts under perfect monitoring and hidden action I provide two extensions. I first show that for the principal to want to delegate search to a rational TWA, the agent has to be better than the CF, by some factor, as it has to make up in efficiency what the principal loses in moral hazard, when the agent waits longer than the principal would like it to. Lastly I prove that it is profit maximizing for the principal to contract one agent and give it a deadline earlier than when the principal would need the worker, and then replace that agent with a competitor if the first one has not succeeded by that earlier deadline.

Paper [IV] estimates at the effect of family experience on relative transition probability into the temporary work agency sector. Using register data for all of Sweden we run a bias-reduced logistic regression, where we include various factors that affect the probability of young adults (aged 18-34) entering the sector. This paper ties in to the literature on occupational inheritance, as well as the literature on changing social norms. We find that having had a parent, sibling or partner in the TWA sector increases your probability of entering.

Place, publisher, year, edition, pages
Umeå: Umeå University, 2016. 18 p.
Series
Umeå economic studies, ISSN 0348-1018 ; 935
Keyword
delegated search, principal-agent, matching, transition probability, temporary work agencies
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:umu:diva-124596 (URN)978-91-7601-536-0 (ISBN)
Public defence
2016-09-09, S205h, The Social Science Building, Umeå University, Umeå, 13:15 (English)
Opponent
Supervisors
Available from: 2016-08-19 Created: 2016-08-17 Last updated: 2016-08-24Bibliographically approved

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