Delegating Recruitment under Asymmetric Information

Recruitment is often delegated to senior employees. Delegated recruitment, however, is vulnerable to moral hazard because senior employees may avoid recruiting the best candidates who could threaten their future seniority. We find that seniors will not deliberately choose bad candidates if the only information asymmetry between the owner and the recruiter relates to the candidates’ ‘type’. Delegation is then superior to direct (owner) recruitment and offering ‘tenure’ or guaranteed seniority to the senior employee is neither always desirable for the owner nor necessary to ensure good recruitment. If there is information asymmetry between the owner and the senior employee regarding additional aspects of firm operations, however, moral hazard may exist and tenure may be needed to ensure that the best candidate is selected. Offering tenure may then be desirable for the owner.