The Peter Principle Revisited: An Agent-Based Model of Promotions, Efficiency, and Mitigation Policies

Abstract

The Peter Principle posits that organizations promoting their best performers risk elevating employees to roles where their competence no longer translates, thereby degrading overall efficiency. We investigate when this dynamic emerges and how to mitigate it using a large-scale agent-based model (ABM) of a five-level hierarchy. Results show the Peter Principle is most pronounced under merit promotion when role requirements change substantially between levels; seniority and random exhibit the weakest Peter effects. Both interventions mitigate performance declines, with merit-with-training particularly effective when skill transfer is limited, and selective demotion restoring agents whose 'true' peak performance is at lower levels.