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Performance, Promotion, and the Peter Principle

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Author Info
Fairburn, James A
Malcomson, James M

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Abstract

This paper considers why organizations use promotions, rather than just monetary bonuses, to motivate employees even though this may conflict with efficient assignment of employees to jobs. When performance is unverifiable, use of promotion reduces the incentive for managers to be affected by influence activities that would blunt the effectiveness of monetary bonuses. When employees are risk neutral, use of promotion for incentives need not distort assignments. When they are risk averse, it may--sufficient conditions for this are given. The distortion may be either to promote more employees than is efficient (the Peter Principle effect) or fewer. Copyright 2001 by The Review of Economic Studies Limited

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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 68 (2001)
Issue (Month): 1 (January)
Pages: 45-66
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Handle: RePEc:bla:restud:v:68:y:2001:i:1:p:45-66

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  1. Robert Dur & Hein Roelfsema, 2006. "Social Exchange and Common Agency in Organizations," Working Papers 06-11, Utrecht School of Economics. [Downloadable!]
    Other versions:
  2. Christian Belzil & Michael Bognanno, 2006. "Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives," Working Papers 0606, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
    Other versions:
  3. Jan Zabojnik, 2008. "Promotion Tournaments in Market Equilibrium," Working Papers 1193, Queen's University, Department of Economics. [Downloadable!]
  4. Melero, Eduardo, 2004. "Evidence on Training and Career Paths: Human Capital, Information and Incentives," IZA Discussion Papers 1377, Institute for the Study of Labor (IZA). [Downloadable!]
  5. Sliwka, Dirk, 2004. "On the Notion of Responsibility in Organizations," IZA Discussion Papers 1423, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Alexander K. Koch & Julia Nafziger, 2007. "Job Assignments under Moral Hazard: The Peter Principle Revisited," IZA Discussion Papers 2973, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Julia Nafziger, 2008. "Job Assignments, Intrinsic Motivation and Explicit Incentives," Bonn Econ Discussion Papers bgse5_2008, University of Bonn, Germany. [Downloadable!]
  8. Ingmar Nyman & Jason G. Cummins, 2007. "“Yes-Men in Tournaments," Hunter College Department of Economics Working Papers 417, Hunter College: Department of Economics. [Downloadable!]
  9. Edward P. Lazear, 2001. "The Peter Principle: Promotions and Declining Productivity," NBER Working Papers 8094, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Hans K. Hvide & Tore Leite, 2003. "A Theory of Capital Structure with Strategic Defaults and Priority Violations," Finance 0311003, EconWPA. [Downloadable!]
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  11. Lazear, Edward P., 2003. "The Peter Principle: A Theory of Decline," IZA Discussion Papers 759, Institute for the Study of Labor (IZA). [Downloadable!]
  12. Matthias Kräkel, 2002. "U-type versus J-type Tournaments as Alternative Solutions to the Unverifiability Problem," Bonn Econ Discussion Papers bgse3_2002, University of Bonn, Germany. [Downloadable!]
  13. Wane, Waly, 2004. "The quality of foreign aid : country selectivity or donors incentives?," Policy Research Working Paper Series 3325, The World Bank. [Downloadable!]
  14. Son Kim & Cheng-Zhong Qin & Yan Yu, 2004. "Bribery in Rank-Order Tournaments," University of California at Santa Barbara, Economics Working Paper Series wp1-03, Department of Economics, UC Santa Barbara. [Downloadable!]
  15. Hvide, Hans K & Kaplan, Todd, 2003. "Delegated Job Design," CEPR Discussion Papers 3907, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  16. Ingmar Nyman & Jason G. Cummins, 2005. "Information Management in Rank-Order Tournaments," Hunter College Department of Economics Working Papers 413, Hunter College: Department of Economics. [Downloadable!]
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