Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2024

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Acceptance Deadlines and Job Offer Design

Xin Zhao*, Changying Li

Building: Rotman School of Management
Room: Room 1065
Last modified: 2024-05-02

Abstract


This paper studies talent recruiting in an incomplete-information environment with the acceptance deadline of an employer’s job offer being a strategic recruiting device. When the terms of employment are invariable, increasing the acceptance deadline raises the chance of the employer hiring candidates with more promising outside options, but reduces the probability of hiring those with less promising alternatives. The employer is more likely to choose extreme deadlines, i.e., extend exploding offers, which require immediate responses, and open offers, which have the longest deadline, when the candidate is more willing to postpone his acceptance decision. Committing herself to a firm deadline is not optimal for the employer; allowing requests for a deadline extension benefits the two parties. When incorporating the acceptance deadline into the design of the job offer, the optimal design for the employer can be implemented using a “bonus-for-early-acceptance” (BFEA) mechanism, which is widely applied in practice. In a BFEA mechanism, the employer (i) specifies a date that her offer expires and (ii) provides a salary bonus for accepting the offer, which is decreasing over time before the offer expires. A candidate anticipating a better outside option takes a longer time to respond and receives a lower bonus. Our result indicates that different BFEA mechanisms adopted in various real-world labor markets reflect the level of competition faced by employers. 


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