Performance, Promotion, and the Peter Principle

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Performance, Promotion, and the Peter Principle

Author Info

James Malcomson
James Fairburn

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James M Malcomson

Abstract

This paper considers why organizations use promotions, rather than just monetary bonuses, to motivate employees even though this may conflict with efficient assignment of employees to jobs. When performance is unverifiable, use of promotion reduces the incentive for managers to be affected by influence activities that would blunt the effectiveness of monetary bonuses. When employees are risk neutral, use of promotion for incentives need not distort assignments. When they are risk averse, it may - sufficient conditions for this are given. The distortion may be either to promote more employees than is efficient (the Peter Principle effect) or fewer.

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Publisher Info
Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 026.

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Date of creation: 2000
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Handle: RePEc:oxf:wpaper:026

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Article
- Fairburn, James A & Malcomson, James M, 2001. "Performance, Promotion, and the Peter Principle," Review of Economic Studies, Blackwell Publishing, vol. 68(1), pages 45-66, January.
Paper
- Fairburn, J.A. & Malcomson, J.M., 2000. "Performance, Promotion, and the Peter Principle," Economics Series Working Papers 9926, University of Oxford, Department of Economics.
- Fairburn, J.A. & Malcomson, J.M., 1995. "Performance, Promotion, and the Peter Principle," UFAE and IAE Working Papers 304.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).

Find related papers by JEL classification:
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

Cited by:
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Ingmar Nyman & Jason G. Cummins, 2007. "“Yes-Men in Tournaments," Hunter College Department of Economics Working Papers 417, Hunter College: Department of Economics. [Downloadable!]
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