Downsizing the Labor Force by Low and High Profit Firms - An Experimental Analysis

Werner Güth, Christian Paul


We theoretically and experimentally employ a principal-agent setting to capture the effects of downsizing the labor force. One of the two main treatments features a large increase of the principal's profit and another one a rather low increase. Our main experimental findings are that downsizing often is avoided and that its frequency does not depend on its profitability. There is evidence that agents spend more effort when downsizing is more profitable what might explain that downsizing frequencies hardly depend on the profitability.

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Journal of Management and Sustainability   ISSN 1925-4725 (Print)   ISSN 1925-4733 (Online)


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