American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Evolution of Managerial Expertise: How Corporate Culture Can Run Amok
American Economic Review
vol. 96,
no. 1, March 2006
(pp. 195–221)
Abstract
This paper investigates how noisy evaluation of worker skills affects human capital investments and hiring. Individuals distort investments toward skills that most managers can evaluate. Dynamically, when workers become managers, managerial expertise can become increasingly skewed over time, raising investment distortions and reducing output. If firms select managerial expertise strategically, efficient investments can be retrieved when (a) identifying whether workers' skills matter more than distinguishing among skilled workers, and (b) initial investment distortions are small. Otherwise, such strategic design worsens long-run outcomes. Finally, we determine when short-run affirmative action policies are effective.Citation
Bernhardt, Dan, Eric Hughson, and Edward Kutsoati. 2006. "The Evolution of Managerial Expertise: How Corporate Culture Can Run Amok." American Economic Review, 96 (1): 195–221. DOI: 10.1257/000282806776157669JEL Classification
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- M14 Corporate Culture; Diversity; Social Responsibility
- M51 Personnel Economics: Firm Employment Decisions; Promotions
- M53 Personnel Economics: Training