Discussion Paper Details

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Title: Options to Quit

Author(s): Gerard Antonie Pfann

Publication Date: September 2000

Keyword(s): Downsizing, Fixed Costs, Job Mobility, Timing and Voluntary Turnover

Programme Area(s): Labour Economics

Abstract: 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.

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Bibliographic Reference

Pfann, G. 2000. 'Options to Quit'. London, Centre for Economic Policy Research.