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Allocative Skill

Updated: Nov 29, 2023

To read the full paper, click here.


Overview

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 our 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.


Key Empirical Findings

  • Allocative skill strongly predicts full-time labor earnings, even conditional on IQ, cognitive reflection, numeracy, and education

  • The association between allocative skill and income is stronger for jobs that require high levels of decision-making

Test your Allocative Skill with our short assessment.


Read the full paper here.






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