DP2563 Options to Quit

Author(s): Gerard Antonie Pfann
Publication Date: September 2000
Keyword(s): Downsizing, Fixed Costs, Job Mobility, Timing, Voluntary Turnover
JEL(s): J63
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2563

This paper develops a theoretical model of optimal quit behaviour for a worker who holds an option to quit but faces a fixed cost of quitting. A worker will accept the outside offer only if the net present value of the difference in expected future cash flows associated with the old and the new job exceeds the costs of quitting plus the value of keeping the option to quit open. The implications of the model are consistent with some empirical facts of quit behaviour that we observe in manufacturing data in the US and in plant level data in The Netherlands.