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Biased Contests and Moral Hazard: Implications for Career Profiles

  • Meyer, Margaret A

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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