Fighting for Lemons: The Encouragement Effect in Dynamic Contests with Private Information
Juan Beccuti and Marc Möller
Revise and Resubmit at The Economic Journal
In a common value environment with multi-stage competition, losing a stage conveys positive news about a rival’s estimation of a contested prize, capable of balancing the discouraging effect of falling behind. We show that, due to this encouragement effect, aggregate incentives under private information are greater than under public information and may even exceed the static competition benchmark. Moreover, laggards can become more motivated than leaders, leading to long-lasting fights. Our results have implications for the duration of R&D races, the desirability of feedback in promotion tournaments and procurement contests, and the campaign spending and selective efficiency of presidential primaries.
Selecting the Best: The Persistent Effects of Luck
Mikhail Drugov, Margaret Meyer, and Marc Möller
CEPR Discussion Paper 19309
We analyze a model of organizational learning where agents’ performance reflects time-invariant unobservable ability, privately-chosen effort, and noise. Our main result is that, even when performance is almost entirely random, maximizing the probability of identifying the best agent (“selective efficiency”) requires biasing final selection in favor of early winners. Making luck persistent, e.g. through fast-tracks, is thus rationalized by the pursuit of selective efficiency. Agents’ strategic efforts amplify the persistence of luck. Organizational learning also affects the persistence of initial advantages stemming from identity. Identity-dependent biases, e.g. gender-specific mentoring, create incentives that make selection both more efficient and more equitable
Procuring New Ideas: The Value of Performance Information in Innovation Tournaments
Martina Bossard, Marc Möller, and Catherine Roux
Coming Soon!