Using a second-price auction to set military retention bonus levels an application to the Australian Army
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Author
Cook, Benjamin M.
Date
2008-03Advisor
Gates, William R.
Coughlan, Peter J.
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The Australian Army is attempting to improve retention rates, announcing a number of retention bonuses in 2007. In a service that has rarely used retention bonuses historical data on the effectiveness of previous bonuses is limited. This thesis looks at both the effectiveness of retention bonuses in the U.S. Military, as well as an alternate method of establishing retention bonus levels with no historical data. It analyses an experiment where a sealed-bid, second-price auction is used to set salaries levels in a generic labor market scenario. The experimental results support the literature: a second-price auction is a cost effective method of setting a retention bonus level. Without historical data and prediction techniques, a second-price auction allows the service to obtain the exact level of manning necessary at a value that more accurately reflects the value of the soldier. This reduces resource wastage. Cost effectiveness is further improved by adding a second auction for a longer term contract. While this analysis may be valuable to the Royal Australian Navy, Royal Australian Air Force and other volunteer militaries around the world, this thesis focuses specifically on application to the Australian Army.
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