Delegated recruitment and statistical discrimination

We study how delegated recruitment shapes talent selection. Firms often pay recruiters via refund contracts, which specify a payment upon the hire of a suggested candidate and a refund if a candidate is hired but terminated during an initial period of employment. We develop a model of delegated recruitment and show that refund contracts with strong screening incentives lead to statistical discrimination in favor of candidates with more precise productivity information. This contrasts with a first-best direct-hiring benchmark, where the firm has option value from uncertain candidates. Under tractable parametric assumptions, we provide a closed-form expression for the unique equilibrium contract and show that it features strong screening incentives. As a result, candidates with lower expected productivity but more informative signals (“safe bets”) are hired over candidates with higher expected productivity but less informative signals (“diamonds in the rough”).