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Ex Ante versus Ex Post Optimal Promotion Rules: The Case of Internal Promotion

Author

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  • Michael Waldman

    () (Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853.)

Abstract

A firm deciding on its promotion practices will be concerned both with the efficient assignment of workers to tasks and with rewarding prior performance. This can result in a time-inconsistency problem because the promotion rule that is optimal at the time of the promotion decision may differ from the rule that is optimal before performance is determined. In this article I explore the role of time inconsistency in determining promotion practices. In particular, I show that the common practice of favoring internal candidates for promotion can be understood as a response by firms to the problem of time inconsistency. Copyright 2003, Oxford University Press.

Suggested Citation

  • Michael Waldman, 2003. "Ex Ante versus Ex Post Optimal Promotion Rules: The Case of Internal Promotion," Economic Inquiry, Western Economic Association International, vol. 41(1), pages 27-41, January.
  • Handle: RePEc:oup:ecinqu:v:41:y:2003:i:1:p:27-41
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    Citations

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    Cited by:

    1. M. Martin Boyer & Hernán Ortiz-Molina, 2008. "Career Concerns of Top Executives, Managerial Ownership and CEO Succession," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(3), pages 178-193, May.
    2. Christian Grund & Niels Westergaard-Nielsen, 2008. "The Dispersion of Employees' Wage Increases and Firm Performance," ILR Review, Cornell University, ILR School, vol. 61(4), pages 485-501, July.
    3. Stefanie Brilon, 2010. "Job Assignment with Multivariate Skills," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2010_25, Max Planck Institute for Research on Collective Goods.
    4. Geir H. Bjertnæs, 2012. "Promotion rat race and public policy," Discussion Papers 686, Statistics Norway, Research Department.
    5. Michael Waldman, 2012. "Theory and Evidence in Internal Labor Markets," Introductory Chapters,in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics Princeton University Press.
    6. repec:eee:eecrev:v:98:y:2017:i:c:p:424-441 is not listed on IDEAS
    7. Xin Jin, 2014. "The Signaling Role of Not Being Promoted: Theory and Evidence," Working Papers 0314, University of South Florida, Department of Economics.
    8. Xin Jin, 2014. "Flattening Firms and Wage Distribution," Working Papers 0414, University of South Florida, Department of Economics.
    9. Braz Camargo & Elena Pastorino, 2012. "Learning-by-employing: the value of commitment under uncertainty," Staff Report 475, Federal Reserve Bank of Minneapolis.
    10. Kräkel, Matthias & Schöttner, Anja, 2012. "Internal labor markets and worker rents," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 491-509.
    11. Junichiro Ishida, 2012. "Dynamically Sabotage-Proof Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 30(3), pages 627-655.
    12. Bond, Timothy N., 2011. "Internal Labor Markets in Equilibrium," MPRA Paper 64496, University Library of Munich, Germany, revised 20 May 2015.
    13. Geir Bjertnaes, 2012. "Promotion Rat Race and Public Policy," CESifo Working Paper Series 3781, CESifo Group Munich.
    14. Alan Benson & Danielle Li & Kelly Shue, 2018. "Promotions and the Peter Principle," NBER Working Papers 24343, National Bureau of Economic Research, Inc.
    15. Jin, Xin, 2014. "Flattening Firms and Wage Distribution," MPRA Paper 58485, University Library of Munich, Germany.
    16. Junichiro Ishida, 2012. "Promotion without Commitment: Signaling, Time Inconsistency and Decentralization of the Firm," ISER Discussion Paper 0843, Institute of Social and Economic Research, Osaka University.
    17. Jed DeVaro, 2016. "Internal hiring or external recruitment?," IZA World of Labor, Institute for the Study of Labor (IZA), pages 237-237, February.
    18. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
    19. Brilon, Stefanie, 2015. "Job assignment with multivariate skills and the Peter Principle," Labour Economics, Elsevier, vol. 32(C), pages 112-121.
    20. Kampkötter, Patrick & Sliwka, Dirk, 2014. "Wage premia for newly hired employees," Labour Economics, Elsevier, vol. 31(C), pages 45-60.
    21. Jin, Xin, 2014. "The Signaling Role of Note Being Promoted: Theory and Evidence," MPRA Paper 58484, University Library of Munich, Germany.
    22. Christian Grund & Niels Westergaard-Nielsen, 2008. "The Dispersion of Employees' Wage Increases and Firm Performance," ILR Review, Cornell University, ILR School, vol. 61(4), pages 485-501, July.
    23. DeVaro, Jed, 2011. "Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions," MPRA Paper 35175, University Library of Munich, Germany.

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