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Biased Contests and Moral Hazard: Implications for Career Profiles

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Meyer, Margaret A

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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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 637.

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Date of creation: Feb 1992
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Handle: RePEc:cpr:ceprdp:637

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Related research
Keywords: Bias; Career Profiles; Contests; Moral Hazard; Organizations;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

Cited by:
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  1. DeVaro, Jed & Waldman, Michael, 2006. "The signaling role of promotions: Further theory and empirical evidence," MPRA Paper 1550, University Library of Munich, Germany. [Downloadable!]
  2. Ian Ayres & Colin Rowat & Nasser Zakariya, 2007. "Optimal Two Stage Committee Voting Rules," Discussion Papers 04-23RR, Department of Economics, University of Birmingham. [Downloadable!]
    Other versions:
  3. Volker Meier, 2001. "Setting Incentives: Temporary Performance Premiums Versus Promotion Tournaments," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Sjögren Lindquist, Gabriella, 2006. "Tournaments and Unfair Treatment," Working Paper Series 8/2006, Swedish Institute for Social Research. [Downloadable!]
  5. Daniel Krähmer, 2005. "Equilibrium Learning in Simple Contests," Discussion Papers 73, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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