The Promotion Rule under Imperfect Observability of the Employee’s Ability

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http://www.scirp.org/journal/PaperInformation.aspx?PaperID=50577#.VEX1Z1fHRK0

Author(s)

Shota Araki¹, Daiji Kawaguchi^1,2

Affiliation(s)

¹Graduate School of Economics, Hitotsubashi University, Tokyo, Japan.
²IZA, Bonn, Germany.

ABSTRACT

This note provides the closed-form solution for the model by Lazear [1]. The employer adjusts the performance standard for promotion when the employer observes only the imperfect index of the employee’s ability. The adjustment margin is larger when the performance depends heavily on luck and depends lightly on the employee’s ability.

KEYWORDS

Peter Principle, Promotion, Employer’s Learning

Cite this paper

Araki, S. and Kawaguchi, D. (2014) The Promotion Rule under Imperfect Observability of the Employee’s Ability. Theoretical Economics Letters, 4, 662-665. doi: 10.4236/tel.2014.48084. 

 

References                                            eww141021lx

[1]	Lazear, E. (2004) The Peter Principle: A Theory of Decline. Journal of Political Economy, 112, S141-S163. http://dx.doi.org/10.1086/379943