You are Chair of your Department and the Department hires two people at the senior level. It is hard to hire at the senior level and many people congratulate you on your success. But the candidates were proposed by others and wooed by others. One is moving because of a divorce and the other is a lemon who is despised by his former colleagues. All you did as Chair was handle the admin stuff and yet everyone still congratulates you. If you had failed to hire, they would have blamed you, even though all that happened was that a marriage worked out and a lemon went elsewhere.

This kind of stuff happens all the time. Why?

The simplest explanation comes from the Principal-Agent model with the Chair as the Agent and the Department as the Principal. In an optimal contract, the Agent is punished for low output and rewarded for high even though in equilibrium we know he has already sunk high effort and output reflects a random shock. If we forgave the agent low output – after all it was a random shock – it would undercut the Agent’s ex ante incentive to exert effort. Similarly, the Department should venerate or denigrate the Chair based on success or failure at senior hiring. Otherwise, you would never work at all on senior recruiting.

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