Near-Efficient Equilibria in Collaborative Meritocracies

Abstract

We examine theoretically and experimentally how a society's grouping and stratification rules affect incentives and efficiency, and compare meritocratic and ascriptive grouping. We present a multi-level model of social production, and extend the usual single-group-level analysis of cooperation to a broadly defined system, in which individuals compete for inclusion in stratified groups based on the contributions they make. Group members share their collective output equally amongst themselves. The mechanism has two pure strategy Nash equilibria, one close to Pareto optimal. The latter equilibrium is asymmetric and rather complex for experimental subjects. Nonetheless, subjects tacitly coordinate this equilibrium very reliably, demonstrating equilibrium's predictive power and providing empirical support for payoff dominance. Our behavioral findings also point to a meritocracy's "naturalness" and effectiveness in eliciting high social contributions. The results make a theoretical and empirical case for why social organization should be based on contribution rather than privilege. They also indicate why societies are increasingly becoming performance-based meritocracies, and are relevant to many forms of contemporary social organization.

Keywords: social stratification, meritocracies, mechanism design, non-cooperative games, experiment, team production

JEL Classification: D29, C72, C92