The Hidden Costs of Downsizing
We analyse whether a principal’s decision to lay off an agent affects the performance of the surviving agents in a laboratory experiment. We find that agents reduce their performance by 43% as a response to the lay-off decision. Heterogeneity in principals‘ decisions can largely be explained by different beliefs about how agents react to lay-offs.
Drzensky, F., Heinz, M. (2015). The Hidden Costs of Downsizing . The Economic Journal.