Abstract
Consider a repeated principal-agent setting with verifiable effort
and an extra profit that can materialize only if the agent is talented. The agent is overconfident and updates beliefs using Bayes’
rule. The agent’s principal-expected compensation decreases over time
until high talent is revealed; thus he may be employed only if beliefs
are sufficiently low. We apply these results to a firm’s promotion policy, which may be based on success in a previous job even if jobs are
uncorrelated. This provides an explanation for the “Peter Principle”
in a setting with verifiable performance and highly confident workers
(Benson et al., 2019).
| Original language | English |
|---|---|
| Number of pages | 33 |
| Publication status | Published - 2023 |
Publication series
| Name | Working Papers of the Department of Economics at JKU Linz |
|---|---|
| No. | 2306 |
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
-
SDG 2 Zero Hunger -
SDG 8 Decent Work and Economic Growth -
SDG 9 Industry, Innovation, and Infrastructure -
SDG 17 Partnerships for the Goals
Fields of science
- 303010 Health economics
- 502 Economics
- 502002 Labour economics
- 502009 Corporate finance
- 502021 Microeconomics
- 502042 Environmental economics
- 502047 Economic theory
- 504014 Gender studies
- 507016 Regional economy
- 405002 Agricultural economics
- 502001 Labour market policy
- 502003 Foreign trade
- 502010 Public finance
- 502012 Industrial management
- 502013 Industrial economics
- 502018 Macroeconomics
- 502020 Market research
- 502025 Econometrics
- 502027 Political economy
- 502039 Structural policy
- 502046 Economic policy
- 506004 European integration
JKU Focus areas
- Sustainable Development: Responsible Technologies and Management
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