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Ex Ante versus Ex Post Optimal Promotion Rules: The Case of Internal Promotion

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  • Michael Waldman

    ()
    (Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853.)

Abstract

A firm deciding on its promotion practices will be concerned both with the efficient assignment of workers to tasks and with rewarding prior performance. This can result in a time-inconsistency problem because the promotion rule that is optimal at the time of the promotion decision may differ from the rule that is optimal before performance is determined. In this article I explore the role of time inconsistency in determining promotion practices. In particular, I show that the common practice of favoring internal candidates for promotion can be understood as a response by firms to the problem of time inconsistency. Copyright 2003, Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 41 (2003)
Issue (Month): 1 (January)
Pages: 27-41

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Handle: RePEc:oup:ecinqu:v:41:y:2003:i:1:p:27-41

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Cited by:
  1. Stefanie Brilon, 2010. "Job Assignment with Multivariate Skills," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_25, Max Planck Institute for Research on Collective Goods.
  2. M. Martin Boyer & Hernán Ortiz-Molina, 2008. "Career Concerns of Top Executives, Managerial Ownership and CEO Succession," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(3), pages 178-193, 05.
  3. Grund, Christian & Westergård-Nielsen, Niels C., 2004. "The Dispersion of Employees’ Wage Increases and Firm Performance," IZA Discussion Papers 1402, Institute for the Study of Labor (IZA).
  4. Junichiro Ishida, 2012. "Dynamically Sabotage-Proof Tournaments," ISER Discussion Paper 0838, Institute of Social and Economic Research, Osaka University.
  5. Geir Bjertnaes, 2012. "Promotion Rat Race and Public Policy," CESifo Working Paper Series 3781, CESifo Group Munich.
  6. Geir H. Bjertnæs, 2012. "Promotion rat race and public policy," Discussion Papers 686, Research Department of Statistics Norway.
  7. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
  8. Waldman, Michael, 2007. "Theory and evidence in internal labor markets," MPRA Paper 5113, University Library of Munich, Germany.
  9. Braz Camargo & Elena Pastorino, 2012. "Learning-by-employing: the value of commitment under uncertainty," Staff Report 475, Federal Reserve Bank of Minneapolis.
  10. DeVaro, Jed, 2011. "Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions," MPRA Paper 35175, University Library of Munich, Germany.
  11. Junichiro Ishida, 2012. "Promotion without Commitment: Signaling, Time Inconsistency and Decentralization of the Firm," ISER Discussion Paper 0843, Institute of Social and Economic Research, Osaka University.
  12. Kräkel, Matthias & Schöttner, Anja, 2012. "Internal labor markets and worker rents," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 491-509.

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