Working Paper: CEPR ID: DP637
Authors: 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.
Keywords: contests; organizations; bias; moral hazard; career profiles
JEL Codes: D23; D82; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bias in contests (C72) | increased first-period incentives (M52) |
| increased first-period incentives (M52) | correlation between early success and later success (D29) |
| bias in contests (C72) | reduction in second-period incentives (M52) |
| first-period winner (D44) | bias in second contest (C72) |
| organization's design of contests (L21) | employee performance outcomes (M51) |