Thursday, March 21, 2013

Optimal Hiring and Retention Policies for Heterogeneous Workers who Learn

ARLOTTO Alessandro, CHICK Stephen E., GANS Noah
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Management Science 60, 1 (2014) 110-129

We study the hiring and retention of heterogeneous workers who learn over time. We show that the problem can be analyzed as an infinite-armed bandit with switching costs and apply results from Bergemann and V¨alim¨aki (2001) to characterize the optimal hiring and retention policy. For problems with Gaussian data, we develop approximations that allow the efficient implementation of the optimal policy and the evaluation of its performance. Our numerical examples demonstrate that the value of active monitoring and screening of employees can be substantial.