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The firm as the locus of social comparisons: Standard promotion practices versus up-or-out

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  • Auriol, Emmanuelle
  • Friebel, Guido
  • von Bieberstein, Frauke

Abstract

We suggest a parsimonious dynamic agency model in which workers have status concerns. A firm is a promotion hierarchy in which a worker's status depends on past performance. We investigate the optimality of two types of promotion hierarchies: (i) standard promotion practices, where agents have a job guarantee, and (ii) “up-or-out”, in which agents are fired when unsuccessful. We show that up-or-out is optimal if success is difficult to achieve. When success is less hard to achieve, standard promotion practices are optimal provided the payoffs associated with success are moderate. Otherwise, up-or-out is, again, optimal.

Suggested Citation

  • Auriol, Emmanuelle & Friebel, Guido & von Bieberstein, Frauke, 2016. "The firm as the locus of social comparisons: Standard promotion practices versus up-or-out," Journal of Economic Behavior & Organization, Elsevier, vol. 121(C), pages 41-59.
    • Handle: RePEc:eee:jeborg:v:121:y:2016:i:c:p:41-59
    DOI: 10.1016/j.jebo.2015.09.005
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    Cited by:

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    3. Ferreira, Daniel & Nikolowa, Radoslawa, 2024. "Prestige, promotion, and pay," LSE Research Online Documents on Economics 118369, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    Status; Promotion hierarchies; Incentives; Sorting;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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