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
Meritocratic principles seem to be abandoned when an initial stroke of luck significantly affects the final allocation of economic resources or decision-making authority. This paper proposes a stylized model of organizational learning where agents’ performance at each stage is the sum of time-invariant, unobservable ability, privately-chosen effort, and transitory noise. Our main result shows that, to identify the most able agent, selection must be biased in favor of agents who perform well initially, even when noise swamps ability and effort differentials in the determination of performance. Making early career luck persistent (e.g. through professional fast-tracks or high- potential programs) is thus rationalized as a necessary consequence of organizational learning. The persistence of luck is amplified by the ordinal nature of performance evaluation and by informed agents’ strategic behaviour. Rationally biased selection processes also propagate advantages stemming from the luck of possessing the right identity (e.g. race or gender), especially when non-discrimination laws restrict biases to be identity-independent.
Procuring New Ideas: The Value of Performance Information in Innovation Tournaments
Martina Bossard, Marc Möller, and Catherine Roux
Coming Soon!