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Job Assignments under Moral Hazard: The Peter Principle Revisited

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  • Alexander K. Koch
  • Julia Nafziger

Abstract

The Peter Principle captures two stylized facts about hierarchies: first, promotions often place employees into jobs for which they are less well suited than for that previously held. Second, demotions are extremely rare. Why do organizations not correct ‘wrong’ promotion decision? This paper shows in a complete contracting setting that a simple trade-off between incentive provision and efficient job assignment may make it optimal to promote some employees to a job at which they produce less than they would at the previous level.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 21 (2012)
Issue (Month): 4 (December)
Pages: 1029-1059

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Handle: RePEc:bla:jemstr:v:21:y:2012:i:4:p:1029-1059

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References

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Citations

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Cited by:
  1. Anja Schöttner & Veikko Thiele, 2007. "Promotion Tournaments and Individual Performance Pay," SFB 649 Discussion Papers SFB649DP2007-045, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. David L. Dickinson & Marie-Claire Villeval, 2007. "The Peter Principle: An Experiment," Working Papers 07-16, Department of Economics, Appalachian State University.
  3. Julia Nafziger, 2008. "Job Assignments, Intrinsic Motivation and Explicit Incentives," Bonn Econ Discussion Papers bgse5_2008, University of Bonn, Germany.
  4. Pawel Sobkowicz, 2010. "Dilbert-Peter Model of Organization Effectiveness: Computer Simulations," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 13(4), pages 4.

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