The positive effects of biased self-perceptions in firms


Journal Article

We study a firm in which the marginal productivity of agents effort increases with the effort of others. We show that the presence of an agent who overestimates his marginal productivity may make all agents better off, including the biased agent himself. This Pareto improvement is obtained even when compensation contracts are set endogenously to maximize firm value. We show that the presence of a leader improves coordination, but self-perception biases can never be Pareto-improving when they affect the leader. Self-perception biases are also shown to affect job assignments within firms and the likelihood and value of mergers.

Full Text

Duke Authors

Cited Authors

  • Gervais, S; Goldstein, I

Published Date

  • December 1, 2007

Published In

Volume / Issue

  • 11 / 3

Start / End Page

  • 453 - 496

Electronic International Standard Serial Number (EISSN)

  • 1573-692X

International Standard Serial Number (ISSN)

  • 1572-3097

Digital Object Identifier (DOI)

  • 10.1093/rof/rfm022

Citation Source

  • Scopus