Allocative Skill

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.