Biased Contests and Moral Hazard: Implications for Career Profiles


Margaret A. Meyer 

Nuffield College, Oxford University




Annales d'Économie et de Statistique, (1992), 25/26, pp.165-187.
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.