Working Paper BETA #2019-20

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Title : Which kind of ability bolsters legitimacy?

Author(s) : Emilien Prost

Abstract : The aim of this paper is to study in a theoretical perspective how the choice of the ability on which an executive is evaluated to be promoted may be a crucial stake. We show that a procedure where an executive is selected on a managerial ability will allow to increase his own wage, compared to a procedure where he needs to demonstrate ability on the same task than his employee. The intuition is that it would neutralize the issue of rivalry with the employee by preserving the self confidence of the employee in spite he has failed at being promoted, making him easier to incentivize. The consequence is that selecting leaders on their ability to outperform their employee will tend to favor the emergence of a leadership culture of humility during the promotion process in a sense that opponents will strategically reduce their performance to preserve the self-confidence of their employee and then make him less costly to incentivize. On the contrary, selecting leaders on managerial ability will favor the emergence of a leadership culture of demonstration of strength.

Key-words : Legitimacy, leadership, tournament, contract theory, moral hazard, personnel economics

JEL Classification : D00,D86, J50, M50, M51