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Biased Contests and Moral Hazard: Implications for Career Profiles

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  • Margaret A. MEYER

Abstract

We study the design of a sequence of two contests between a pair of identical risk averse employees whose effort choices are private information. It is optimal for the organization to "bias" the second contest in favor of the early winner--the reduction in second-period incentives is outweighed by the increase in first-period incentives. Thus, even though first-period success reflects only transitory shocks and not ability, it is efficient to structure the contests so these shocks have persistent effects on employees' careers.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (1992)
Issue (Month): 25-26 ()
Pages: 165-187

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Handle: RePEc:adr:anecst:y:1992:i:25-26:p:08

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