BY: JOAO RICARDO FARIA
University of Technology, Sydney
Department Finance and Economics
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Paper ID: UTS Working Paper No. 101
Date: January 2000
Contact: JOAO RICARDO FARIA
Email: Mailto:joao.faria at uts.edu.au
Postal: University of Technology, Sydney
Department Finance and Economics
P.O. Box 123, Broadway
Haymarket
Sydney, 2007 AUSTRALIA
Phone: +61-2-9514 7782
Fax: +61-2-95147711
ABSTRACT:
The paper discusses how the Peter and Dilbert Principles can
occur and what are the consequences for a profit maximizing
firm. A competence frontier is constructed as a linear
combination of the maximum levels of technical and social skills
that are difficult to measure and evaluate. The Peter Principle
holds when managers are chosen from workers that are in the
competence frontier and the Dilbert Principle when they are
below the competence frontier. It is shown that the
profitability under the Dilbert Principle is less than under the
Peter Principle. The introduction of new technologies is one
form to avoid the Dilbert Principle.
JEL Classification: M12, L22