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

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.

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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.

Conflicts of Interest

The authors declare no conflicts of interest.

References

[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

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