The Peter Principle: An Experiment
The 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. Key Words: Promotion, Peter Principle, Sorting, Experiment
|Date of creation:||2007|
|Contact details of provider:|| Postal: Thelma C. Raley Hall, Boone, North Carolina 28608|
Web page: http://economics.appstate.edu/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eric Van den Steen, 2004. "Rational Overoptimism (and Other Biases)," American Economic Review, American Economic Association, vol. 94(4), pages 1141-1151, September.
- Dan Bernhardt, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 315-339.
- 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).
- Margaret A. Meyer, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 15-41.
- Edward P. Lazear, 2004. "The Peter Principle: A Theory of Decline," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 141-163, February. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:apl:wpaper:07-16. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (O. Ashton Morgan)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.