The Economics of Leadership

Ed Lazear, who does personnel economics (and happens to be one of the best communicators in the profession) is speaking at ANU on 1 October. Details below, flyer here.


Thursday 1 October, 4.30–6pm
Lecture Theatre, Innovations Building 124, Eggleston Road, ANU

This lecture is free and open to the public. Refreshments will follow the lecture.

One subject that has received an increased amount of attention in the business world is ‘leadership’. Although it is widely recognized that leadership is an important component of making an organisation successful, formal models and empirical analyses of leadership are rare.

The basic motivation pushed here is that leaders are better at making decisions and setting directions than their peers. The more they demonstrate this, the more followers they acquire and the higher they
rise in leadership hierarchy. Building on this view, the analysis produces three main results, the last two of which are testable with the data at hand and borne out. First, ability and number of contacts per period, are complements. The more able seek visibility. Second, the most able leaders are in the highest variance industries. Talent has the highest payoff in industries in which outcomes vary greatly. Third, leaders are generalists, not technical specialists.

General skills are particularly valuable for entrepreneurs, a specific type of leader, because a business can be torpedoed from any of a large number of possible directions. In an extreme manifestation of the generalist view, there is a ‘weakest link’ aspect to this activity. A leader who is a good technician but poor ‘people person’ may sink his business because he cannot deal with the interpersonal relations that are key to making things run. Empirical analysis using a unique data set backs up the predictions.

Edward P. Lazear is the Jack Steele Parker Professor of Human Resources, Management and Economics at Stanford University’s Graduate School of Business and Morris A. Cox Senior Fellow at the Hoover Institution. He was awarded the 1998 Leo Melamed Biennial Prize for outstanding research, the 2003 Adam Smith Prize from the European Association of Labor Economists and the 2004 Prize in Labor Economics from the Institute for the Study of Labor, Bonn. He is the 2006 recipient of the Jacob Mincer Prize for lifetime achievement in the field of labor economics.

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