Alan M. Benson
Carlson School of Management
321 19th Ave S, 3-300
Minneapolis, MN 55409
Institutional Affiliation: University of Minnesota
Information about this author at RePEc
NBER Working Papers and Publications
|February 2018||Promotions and the Peter Principle|
with , : w24343
The best worker is not always the best candidate for manager. In these cases, do firms promote the best potential manager or the best worker in her current job? Using microdata on the performance of sales workers at 214 firms, we find evidence consistent with the “Peter Principle,” which predicts that firms prioritize current job performance in promotion decisions at the expense of other observable characteristics that better predict managerial performance. We estimate that the costs of promoting workers with lower managerial potential are high, suggesting either that firms are making inefficient promotion decisions or that the benefits of promotion-based incentives are great enough to justify the costs of managerial mismatch.
Published: Alan Benson & Danielle Li & Kelly Shue, 2019. "Promotions and the Peter Principle*," The Quarterly Journal of Economics, vol 134(4), pages 2085-2134.