DP7408 Referral and Job Performance: Evidence from the Ghana Colonial Army

Author(s): Marcel Fafchamps, Alexander Moradi
Publication Date: August 2009
Keyword(s): employee referral, hidden attributes, worker productivity
JEL(s): J63, N47, O15
Programme Areas: Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7408

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.