DP637 Biased Contests and Moral Hazard: Implications for Career Profiles
|Author(s):||Margaret A Meyer|
|Publication Date:||February 1992|
|Keyword(s):||Bias, Career Profiles, Contests, Moral Hazard, Organizations|
|JEL(s):||D23, D82, J41|
|Programme Areas:||Applied Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=637|
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.