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Hiring Strategies and the Evolution of Honesty

Polterovich, Victor and Tonis, Alexander (2005): Hiring Strategies and the Evolution of Honesty.

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The evolution of honesty norms in a society is studied. Our approach is based on the hypothesis that hiring or firing strategies chosen by firms may affect honesty: if it becomes common knowledge in the society that being honest is better for workers than cheating employers, then the share of opportunists gradually go down. It is shown that different hiring strategies are rational under different honesty standards. If honesty is not a prevailing social norm and volumes of appropriated rent may by high enough, then firms are better off to stimulate honest behavior by increasing wages. For a relatively honest society, firing cheaters is the best strategy. If honesty standards are intermediate or citizens are too impatient, ignorance of cheating may be rational. Therefore one observes three possible patterns of honesty evolution: honesty norms may either descend to critically low level or stabilize at some point or rise and fall cyclically.

We prove that honesty standard rises as losses from dishonest behavior or hiring cost increase, honesty standard falls as rent appropriation opportunities expand or citizens get more impatient, and high expectations of economic growth promote honesty.

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