Abstract
Standard economic theory identifies a trade‐off between up‐or‐stay and up‐or‐out promotion rules. Up‐or‐stay never wastes the skills of those not promoted but may provide insufficient incentives to invest in skills. Up‐or‐out can always induce investment in skill acquisition but may waste the skills of those not promoted. The paper reports an experiment designed to study this trade‐off. Under up‐or‐out, parties behave almost exactly as theory predicts. But under up‐or‐stay (and stay‐or‐stay), results differ markedly from theoretical predictions. In that case workers invest rather frequently, although the prediction is that they would not. These deviations can be explained by various reciprocity mechanisms.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
