TITLE:
The Promotion Rule under Imperfect Observability of the Employee’s Ability
AUTHORS:
Shota Araki, Daiji Kawaguchi
KEYWORDS:
Peter Principle, Promotion, Employer’s Learning
JOURNAL NAME:
Theoretical Economics Letters,
Vol.4 No.8,
October
17,
2014
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.