Working Paper: CEPR ID: DP7408
Authors: Marcel Fafchamps; Alexander Moradi
Abstract: As formalized by Montgomery (1991), referral by employees improves efficiency if the unobserved quality of a new worker is higher than that of unrefereed workers. Using data compiled from army archives, we test whether the referral system in use in the British colonial army in Ghana served to improve the unobserved quality of new recruits. We find that it did not: referred recruits were more likely than unreferred recruits to desert or be dismissed as 'inefficient' or 'unfit'. We find instead evidence of referee opportunism. The fact that referred recruits have better observed characteristics at the time of recruitment suggests that army recruiters may have been aware of this problem.
Keywords: employee referral; hidden attributes; worker productivity
JEL Codes: J63; N47; O15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Referral Status (I11) | Subsequent Performance (Y20) |
| Referred Recruits (Y80) | Higher Risk of Desertion (H56) |
| Referred Recruits (Y80) | Higher Risk of Dismissal (J63) |
| Height and Chest Circumference (Y10) | Referral Status (I11) |
| Rank of Referee (Z22) | Quality of Recruits (L15) |