An Exploration of the Promotion Signaling Distortion

Michael Waldman and Ori Zax

The Journal of Law, Economics, and Organization, 2016, vol. 32, issue 1, 119-149

Abstract: Beginning with Waldman, Michael. 1984a. "Job Assignments, Signalling, and Efficiency," 15 Rand Journal of Economics 255–67, it is well understood that in a world characterized by asymmetric learning promotions can serve as a signal of worker ability which can, in turn, lead to an inefficiently small number of promotions. In this article, we explore two related issues. First, how robust is the finding of a promotion signaling distortion to different ways of modeling the promotion process? Second, what are the various forms that the promotion signaling distortion can take? Our first conclusion is that a promotion signaling distortion exists across a wide range of settings, including some for which earlier work suggests no distortion. Our second conclusion is that, even if there is no inefficiency concerning the number of promotions, there can still be a promotion distortion that takes the form of inefficiencies concerning who is promoted. (JEL M51, J31).

Date: 2016
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Working Paper: An exploration of the promotion signaling distortion (2014)
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