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American Economic Review: Vol. 96 No. 1 (March 2006)

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The Evolution of Managerial Expertise: How Corporate Culture Can Run Amok

Article Citation

Bernhardt, Dan, Eric Hughson, and Edward Kutsoati. 2006. "The Evolution of Managerial Expertise: How Corporate Culture Can Run Amok." The American Economic Review, 96(1): 195-221.

DOI: 10.1257/000282806776157669

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.

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Authors

Bernhardt, Dan
Hughson, Eric
Kutsoati, Edward


American Economic Review



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