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Job Allocation Rules and Sorting Efficiency: Experimental Outcomes in a Peter Principle Environment

  • David L. Dickinson


    (Appalachian State University, Department of Economics, Boone, NC 28608, USA;)

  • Marie Claire Villeval


    (University of Lyon, Lyon, F-69007, France; Centre Nationale de Recherche Scientifique, Groupe d'Analyse et de Théorie Economique, 93 chemin des Mouilles, Ecully, F-69130, France (current address); Institute for the Study of Labor, Bonn, Germany)

An important issue in personnel economics is the design of efficient job allocation rules. Firms often use promotions both to sort workers across jobs and to provide them with incentives. However, the Peter Principle states that employees' output tends to fall after a promotion. Lazear (2004) suggests that self-selection may improve job allocation efficiency while preserving incentive effects. We reproduce this Peter Principle in the laboratory and compare the efficiency of a promotion standard with subjects self-selecting their task. We find no evidence of effort distortion, as predicted by theory. Furthermore, we find that when the Peter Principle is not severe, promotion rules often dominate self-selection efficiency of task assignment. Results are consistent with imperfect appraisal of transitory ability and a lack of strategic behavior.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 78 (2012)
Issue (Month): 3 (January)
Pages: 842-859

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Handle: RePEc:sej:ancoec:v:78:3:y:2012:p:543-556
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  1. 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.
  2. Bernhardt, Dan & Scoones, David, 1993. "Promotion, Turnover, and Preemptive Wage Offers," American Economic Review, American Economic Association, vol. 83(4), pages 771-91, September.
  3. Bernhardt, Dan, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 315-39, April.
  4. Eric Van den Steen, 2004. "Rational Overoptimism (and Other Biases)," American Economic Review, American Economic Association, vol. 94(4), pages 1141-1151, September.
  5. Michael Waldman, 1983. "Job Assignments, Signalling nad Efficiency," UCLA Economics Working Papers 286, UCLA Department of Economics.
  6. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
  7. Prendergast, Canice & Topel, Robert H, 1996. "Favoritism in Organizations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 958-78, October.
  8. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
  9. 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.
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