Fixed-Fee Referral Inelasticity
RCTReview
Increasing flat-rate monetary rewards for job referrals fails to improve candidate quality because fixed fees do not align the referrer's financial interest with candidate productivity. Without output-contingent rewards, higher unconditional payouts yield identical recruitment choices.
Picture this
Think of paying a talent agent a flat fee to bring any singer to an audition versus paying them a bonus only if the singer gets hired. Doubling the flat fee makes the agent happier, but they still bring their neighbor; only a bonus tied to performance forces the agent to look for real talent.
What the evidence says
Increasing fixed referral fees from Rs. 60 to Rs. 80 or Rs. 110 produced zero statistically significant impact on referral quality, choice of candidate, or task performance.
- Who was studied
- 562 original participants and 407 referrals (adult males aged 18 to 60) in Kolkata, India.
- How
- RCT laboratory experiment comparing three fixed payment tiers (Rs. 60, Rs. 80, Rs. 110) against performance-indexed payment tiers (Rs. 0-20, Rs. 0-50).
What to do
Reallocate marginal recruitment budget away from increasing flat referral bonuses and toward performance-contingent bonuses tied to referred worker productivity.
From the source
"The amount of the fixed fee did not impact the referral process."
Leveraging Social Networks for Job Referrals in India.pdf