Matthias Fahn, Nicolas Klein,
"Non-Common Priors, Incentives, and Promotions: The Role of Learning"
, in Department of Economics | JKU Linz, Serie Working Paper No. 2306, 2023
Non-Common Priors, Incentives, and Promotions: The Role of Learning
Sprache des Titels:
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).