Hierarchical Sorting and Learning Costs: Theory and Evidence from the Law

Garicano and Rossi-Hansberg (2003) show that knowledge-based hierarchies arecharacterized by positive sorting between workers and managers when knowledgeacquisition takes place before production. We extend the analysis and find thatcomplementarities between manager and worker skill are even stronger whenknowledge is acquired on the job. We then examine empirically the existence ofsorting in law firms along the dimensions of cognitive ability and experience. Wefind strong evidence of positive sorting by cognitive ability, as proxied by the qualityof the law school attended, but little evidence of sorting by experience, suggestinglittle substitutability between cognitive ability and experience.[...]