The Peter Principle: An Experiment
AbstractThe Peter Principle states that, after a promotion, the observed output of promoted employees tends to fall. Lazear (2004) models this principle as resulting from a regression to the mean of the transitory component of ability. Our experiment reproduces this model in the laboratory by means of various treatments in which we alter the variance of the transitory ability. We also compare the efficiency of an exogenous promotion standard with a treatment where subjects self-select their task. Our evidence confirms the Peter Principle when the variance of the transitory ability is large. In most cases, the efficiency of job allocation is higher when using a promotion rule than when employees are allowed to self-select their task. This is likely due to subjects’ bias regarding their transitory ability. Naïve thinking, more than optimism/pessimism bias, may explain why subjects do not distort their effort prior to promotion, contrary to Lazear’s (2004) prediction.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3205.
Length: 34 pages
Date of creation: Dec 2007
Date of revision:
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Other versions of this item:
- David Dickinson & Marie-Claire Villeval, 2007. "The Peter Principle: An Experiment," Post-Print halshs-00201225, HAL.
- David L. Dickinson & Marie-Claire Villeval, 2007. "The Peter Principle: An Experiment," Working Papers 07-16, Department of Economics, Appalachian State University.
- David Dickinson & Marie-Claire Villeval, 2007. "The Peter Principle: An Experiment," Working Papers 0728, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
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- 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.
- Eric Van den Steen, 2004. "Rational Overoptimism (and Other Biases)," American Economic Review, American Economic Association, vol. 94(4), pages 1141-1151, September.
- Alexander K. Koch & Julia Nafziger, 2012.
"Job Assignments under Moral Hazard: The Peter Principle Revisited,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 21(4), pages 1029-1059, December.
- Koch, Alexander K. & Nafziger, Julia, 2007. "Job Assignments under Moral Hazard: The Peter Principle Revisited," IZA Discussion Papers 2973, Institute for the Study of Labor (IZA).
- 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.
- Bernhardt, Dan, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 315-39, April.
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