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Theories from the economics, management control, and organizational behavior literatures predict that when it is difficult to align incentives by contracting on output, aligning preferences via employee selection may provide a useful alternative. This paper investigates this idea empirically using personnel and lending data from a financial services organization that implemented a highly decentralized business model. The author exploits variation in this organization in whether or not employees are selected via channels that are likely to sort on the alignment of their preferences with organizational objectives.
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