published in: American Economic Journal: Microeconomics, 2015, 7 (1), 99–108
We provide a new rationale for the use of discretionary bonuses. In a setting with unknown match qualities between a worker and a firm and subjective evaluations by the principal, bonuses are useful in order to make the feedback from the firm to the workers credible. This way workers in good matches are less inclined to accept outside offers.
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