Relational retention |
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Authors: | Daniel Herbold Heiner Schumacher |
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Institution: | 1. Goethe-University Frankfurt, Theodor-W.-Adorno-Platz 4, 60323 Frankfurt am Main, Germany;2. KU Leuven, Department of Economics, Naamsestraat 69, 3000, Leuven, Belgium |
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Abstract: | This paper uses a repeated-game model to study the retention of talented workers in the face of competition for talent. When the job benefits that workers value are non-contractible, retention cannot be achieved by a sequence of spot contracts, but must be based on self-enforcing long-term agreements, which we call relational retention contracts. Retention then is successful only if workers trust their employers' promises. We demonstrate that relational contracts are valuable even if there are no incentive problems inside firms and that firms with a relatively low valuation for talent may be able to retain talented workers. |
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