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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.

Suggested Citation

  • Margaret A. Meyer, 1992. "Biased Contests and Moral Hazard: Implications for Career Profiles," Annals of Economics and Statistics, GENES, issue 25-26, pages 165-187.
    • Handle: RePEc:adr:anecst:y:1992:i:25-26:p:165-187
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    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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