Organizations and Markets

Lazear on Leadership

27 April 2010 at 11:33 am Peter G. Klein 3 comments

| Peter Klein |

Ed Lazear tries his hand at the leadership literature in “Leadership: A Personnel Economics Approach.” The paper fits closely with his earlier work on entrepreneurship (here and here). Intuition:

The view presented [here] is that leaders are individuals who confront new situations often and choose the right direction in a high proportion of cases. Leaders also have the ability to identify situations where their skills will be needed and to do this frequently in a public setting. As a result of their success in choosing direction, and because the success is observable to others, leaders acquire followers who turn to the leaders for guidance in new and ambiguous situations. Individuals follow those who make correct decisions for a variety of reasons, the most direct of which is that they will boost their own probabilities of being correct by mimicking the decisions of the leaders. Thus, a leader is someone who has both vision and wisdom and who attracts a coterie of followers because of displayed superiority of decision making.

Because leaders are confronted with a wide variety of choices and because these choices span many fields, leaders tend to be generalists rather than specialists. Further, the broader the organization that an individual leads, the more general are the skills. . . .

An additional key ingredient is that leaders also possess the skills necessary to convince others that they have leadership ability. Consequently, communication skills are likely to be an important component in the leadership mix.

A formal model generates some testable propositions: “1. Ability and visibility, manifested in number of contacts per period, are complements. The most able seek to be the most visible in decision making settings. 2. The most able leaders are in the highest variance industries. 3. Leaders are generalists.” Survey data from Stanford MBAs are consistent with #2 and #3. Overall, a useful contribution to the small economics-of-leadership literature pioneered by Ben Hermalin.

Update: I neglected to mention this very important paper on leadership.

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Entry filed under: - Klein -, Entrepreneurship, Management Theory.