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Turning Up the Heat: The Discouraging Effect of Competition in Contests

Journal article
Authors Dawei Fang
T Noe
P Strack
Published in Journal of Political Economy
Volume 128
Issue 5
Pages 1940-1975
ISSN 0022-3808
Publication year 2020
Published at Centre for Finance
Department of Economics
Pages 1940-1975
Language en
Links https://doi.org/10.1086/705670
Subject categories Economics and Business

Abstract

We study contests in which contestants are homogeneous and have convex effort costs. Increasing contest competitiveness, by making prizes more unequal, scaling up the competition, or adding new contestants, always discourages effort. These results have significant implications: although often criticized as evidence of laxity or cronyism, muting competition (e.g., adopting softer grading curves or less high-powered promotion systems) can both reduce inequality and increase output. Holding promotion contests at the division level rather than the firm level can boost employees’ effort. Our results are also consistent with personnel policies that feature egalitarian pay systems and dismissal of worst-performing employees.

Page Manager: Webmaster|Last update: 9/11/2012
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