progress in economics, an ongoing series

Doug Henwood dhenwood at panix.com
Fri Sep 8 11:48:26 PDT 2000


"An Economic Analysis of the Peter and Dilbert Principles"

BY: JOAO RICARDO FARIA

University of Technology, Sydney

Department Finance and Economics

Document: Available from the SSRN Electronic Paper Collection:

http://papers.ssrn.com/paper.taf?abstract_id=231650

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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



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