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Optimal Promotion Policies with the Looking-Glass Effect

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  • Junichiro Ishida

    (Osaka University)

Abstract

This article considers a model where the agent is uncertain about his innate ability and instead makes an inference from others' (namely, the principal's) perception, as often emphasized in the psychology literature. When the principal has superior knowledge about the agent's productivity than the agent himself, the principal has an incentive to use promotions strategically to boost the agent's self-confidence. Within this framework the optimal promotion policy depends not only on the agent's current expected ability type but also on the history of his previous job assignments. We use this fact to explain why we rarely observe demotions in organizations.

Suggested Citation

  • Junichiro Ishida, 2006. "Optimal Promotion Policies with the Looking-Glass Effect," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 857-878, October.
  • Handle: RePEc:ucp:jlabec:v:24:y:2006:i:4:p:857-878
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Chia-Hui Chen & Junichiro Ishida, 2015. "Hierarchical Experimentation," ISER Discussion Paper 0949, Institute of Social and Economic Research, Osaka University.
    2. Ishida, Junichiro, 2012. "Contracting with self-esteem concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 329-340.
    3. Kamphorst, Jurjen J.A. & Swank, Otto H., 2013. "When Galatea cares about her reputation: How having faith in your workers reduces their motivation to shine," European Economic Review, Elsevier, vol. 60(C), pages 91-104.
    4. 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.
    5. Renaud Bourlès & Anastasia Cozarenco & Dominique Henriet & Xavier Joutard, 2015. "Business Training Allocation and Credit Scoring: Theory and Evidence from Microcredit in France," Working Papers halshs-01171949, HAL.
    6. Silvia Dominguez Martinez & Otto H. Swank, 2011. "On the Role of Pre-Determined Rules for HRM Policies," Tinbergen Institute Discussion Papers 11-034/1, Tinbergen Institute.
    7. Jurjen J. A. Kamphorst & Otto H. Swank, 2016. "Don't Demotivate, Discriminate," American Economic Journal: Microeconomics, American Economic Association, vol. 8(1), pages 140-165, February.
    8. Choe, Chongwoo & Lien, Donald & Yu, Chia-Feng (Jeffrey), 2015. "Optimal managerial hedging and contracting with self-esteem concerns," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 354-367.
    9. 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.
    10. Julia Nafziger, 2008. "Job Assignments, Intrinsic Motivation and Explicit Incentives," Bonn Econ Discussion Papers bgse5_2008, University of Bonn, Germany.
    11. Junichiro Ishida, 2012. "Dynamically Sabotage-Proof Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 30(3), pages 627-655.

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