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Biased Contests and Moral Hazard: Implications for Career Profiles

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  • Meyer, Margaret A

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

  • Meyer, Margaret A, 1992. "Biased Contests and Moral Hazard: Implications for Career Profiles," CEPR Discussion Papers 637, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:637
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    Keywords

    Bias; Career Profiles; Contests; Moral Hazard; Organizations;
    All these keywords.

    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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