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Job Assignments under Moral Hazard: The Peter Principle Revisited

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  • Koch, Alexander K.

    ()
    (Aarhus University)

  • Nafziger, Julia

    ()
    (Aarhus University)

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

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
Date of revision:
Publication status: published in: Journal of Economics & Management Strategy, 2012, 21 (4), 1029-1059
Handle: RePEc:iza:izadps:dp2973

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

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Cited by:
  1. 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, Journal of Artificial Societies and Social Simulation, vol. 13(4), pages 4.
  2. Julia Nafziger, 2008. "Job Assignments, Intrinsic Motivation and Explicit Incentives," Bonn Econ Discussion Papers, University of Bonn, Germany bgse5_2008, University of Bonn, Germany.
  3. David Dickinson & Marie-Claire Villeval, 2007. "The Peter Principle: An Experiment," Post-Print, HAL halshs-00201225, HAL.
  4. Anja Schöttner & Veikko Thiele, 2010. "Promotion Tournaments and Individual Performance Pay," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 19(3), pages 699-731, 09.

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