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Job Allocation Rules and Sorting Efficiency: Experimental Outcomes in a Peter Principle Environment

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  • David Dickinson

    (Department of Economics - Appalachian State University)

  • Marie Claire Villeval

    ()
    (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I)

Abstract

An important issue in personnel economics is the design of efficient job allocation rules. Firms often use promotions both to sort workers across jobs and to provide them with incentives. However, the Peter Principle states that employees' output tends to fall after a promotion. Lazear (2004) suggests that self-selection may improve job allocation efficiency while preserving incentive effects. We reproduce this Peter Principle in the laboratory and compare the efficiency of a promotion standard with subjects self-selecting their task. We find no evidence of effort distortion, as predicted by theory. Furthermore, we find that when the Peter Principle is not severe, promotion rules often dominate self-selection efficiency of task assignment. Results are consistent with imperfect appraisal of transitory ability and a lack of strategic behavior.

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Paper provided by HAL in its series Post-Print with number halshs-00664665.

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Date of creation: 2012
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Publication status: Published, Southern Economic Journal, 2012, 78, 3, pp. 842-859
Handle: RePEc:hal:journl:halshs-00664665

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00664665
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Keywords: Promotion; Peter Principle; Sorting; Experiment;

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  1. Canice Prendergast & Robert H. Topel, 1993. "Favoritism in Organizations," NBER Working Papers 4427, National Bureau of Economic Research, Inc.
  2. Meyer, Margaret A, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 15-41, January.
  3. Bernhardt, Dan, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 315-39, April.
  4. Bernhardt, Dan & Scoones, David, 1993. "Promotion, Turnover, and Preemptive Wage Offers," American Economic Review, American Economic Association, vol. 83(4), pages 771-91, September.
  5. Eric Van den Steen, 2004. "Rational Overoptimism (and Other Biases)," American Economic Review, American Economic Association, vol. 94(4), pages 1141-1151, September.
  6. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
  7. Edward P. Lazear, 2004. "The Peter Principle: A Theory of Decline," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S141-S163, February.
  8. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
  9. Michael Waldman, 1983. "Job Assignments, Signalling nad Efficiency," UCLA Economics Working Papers 286, UCLA Department of Economics.
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