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Job Assignments under Moral Hazard: The Peter Principle Revisited

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Author Info
Alexander K. Koch () (Royal Holloway, University of London and IZA)
Julia Nafziger () (ECARES, Université Libre de Bruxelles)

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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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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2973.

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Length: 30 pages
Date of creation: Aug 2007
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Handle: RePEc:iza:izadps:dp2973

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Related research
Keywords: moral hazard; information; job assignments; Peter Principle;

Other versions of this item:

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David Dickinson & Marie-Claire Villeval, 2007. "The Peter Principle: An Experiment," Post-Print halshs-00201225_v1, HAL. [Downloadable!]
    Other versions:
  2. Julia Nafziger, 2008. "Job Assignments, Intrinsic Motivation and Explicit Incentives," Bonn Econ Discussion Papers bgse5_2008, University of Bonn, Germany. [Downloadable!]
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