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Allocative Skill

Andrew Caplin,David Deming,Søren Leth-Petersen,Ben Weidmann

Published 2023 in Social Science Research Network

ABSTRACT

Jobs increasingly require good decision-making. Workers are valued not only for how much they can do, but also for their ability to decide what to do. In this paper we develop a theory and measurement paradigm for assessing individual variation in the ability to make good decisions about resource allocation, which we call allocative skill. We begin with a model where agents strategically acquire information about factor productivity under time and effort constraints. Conditional on such constraints, agents’ allocative skill can be defined as the marginal product of their attention. We test our model in a field survey where participants act as managers assigning fictional workers with heterogeneous productivity schedules to job tasks and are paid in proportion to output. Allocative skill strongly predicts full-time labor earnings, even conditional on IQ, numeracy, and education, and the return to allocative skill is greater in decision-intensive occupations. Andrew Caplin Department of Economics New York University 19 W. 4th Street, 6th Floor New York, NY 10012 and NBER andrew.caplin@nyu.edu David J. Deming Harvard Kennedy School Malcolm Wiener Center for Social Policy 79 JFK St Cambridge, MA 02138 and Harvard Kennedy School and also NBER david_deming@harvard.edu Søren Leth-Petersen Department of Economics and CEBI University of Copenhagen Oster Farimagsgade 5 Building 26 DK-1353 Copenhagen K Denmark Soren.Leth-Petersen@econ.ku.dk Ben Weidmann Harvard Kennedy School Malcolm Wiener Center for Social Policy 79 JFK St Cambridge, MA 02138 benweidmann@hks.harvard.edu A data appendix is available at http://www.nber.org/data-appendix/w31674 A link to play a short version of the Assignment Game is available at https://www.skillslab.dev/assignment-game For acknowledgments and financial disclosure information, see: http://www.nber.org/papers/w31674

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