The Peter Principle: Promotions and Declining Productivity
Many have observed that individuals perform worse after having received a promotion. The most famous statement of the idea is the Peter Principle, which states that people are promoted to their level of incompetence. There are a number of possible explanations. Two are explored. The most traditional is that the prospect of promotion provides incentives which vanish after the promotion has been granted; thus, tenured faculty slack off. Another is that output as a statistical matter is expected to fall. Being promoted is evidence that a standard has been met. Regression to the mean implies that future productivity will decline on average. Firms optimally account for the regression bias in making promotion decisions, but the effect is never eliminated. Both explanations are analyzed. The statistical point always holds; the slacking off story holds only under certain compensation structures.
|Date of creation:||Jan 2001|
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|Publication status:||published as 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.|
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- Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November.
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"Performance, Promotion, and the Peter Principle,"
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Wiley Blackwell, vol. 68(1), pages 45-66, January.
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- James Malcomson & James A. Fairburn, 2000. "Performance, Promotion, and the Peter Principle," Economics Series Working Papers 26, University of Oxford, Department of Economics.
- Joao Ricardo Faria, 2000. "An Economic Analysis of the Peter and Dilbert Principles," Working Paper Series 101, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
- Anderson, Ralph E. & Dubinsky, Alan J. & Mehta, Rajiv, 1999. "Sales managers: Marketing's best example of the peter principle?," Business Horizons, Elsevier, vol. 42(1), pages 19-26.
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