The evolution of managerial expertise: How corporate culture can run amok

Dan Bernhardt, Eric Hughson, Edward Kutsoati

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)195-221
Number of pages27
JournalAmerican Economic Review
Volume96
Issue number1
DOIs
StatePublished - Mar 1 2006

ASJC Scopus subject areas

  • Economics and Econometrics

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