On-the-Job Search, Work Effort and Hyperbolic Discounting

This paper assesses theoretically and examines empirically the effects of time preferences on two types of career investments: work effort and on-the-job search activities. Whereas the former increases the probability of getting promoted, the latter affect the chance of receiving an outside job offer. The aim of this study is to test the exponential versus the hyperbolic discounting model within a framework of on-thejob behaviour. I develop a theoretical model which allows for endogenous work effort and on-the-job search intensity. The central assumption of the model is that the gains of promotion are larger but more delayed than the gains of (external) job mobility. Depending on whether exponential or hyperbolic discounting is assumed, this model leads to different predictions of the effect of patience on career investments. I make use of the CentER/DNB Household Survey (1996-2007), a large Dutch longitudinal survey containing detailed information about individual time preferences, on-the-job search behaviour and indicators of work effort. This study is the first to assess empirically the relation between time preferences and on-the-job search behaviour. The results provide support for the hyperbolic discounting model. JEL Classification: D03; J62; J29