Less Competition, More Meritocracy?

57 Pages Posted: 5 Dec 2018 Last revised: 15 Nov 2019

See all articles by Dawei Fang

Dawei Fang

Göteborg University - Center For Finance; Göteborg University - Department of Economics

Thomas H. Noe

University of Oxford - Said Business School; University of Oxford - Balliol College; Bank of Finland; European Corporate Governance Institute

Date Written: November 14, 2019

Abstract

Uncompetitive contests for grades, promotions, retention, and job assignments, which feature lax standards and limited candidate pools, are often criticized for being unmeritocratic. We show that, when contestants are strategic, lax standards and exclusivity can make selection more meritocratic. When many contestants compete for a few promotions, strategic contestants adopt high-risk strategies. Risk-taking reduces the correlation between performance and ability. Through reducing the effects of risk-taking, "Peter-Principle'' promotion policies, which entail promoting some contestants that are unlikely to be worthy, can increase the overall correlation between selection and ability, and thus further the goal of meritocratic selection.

Keywords: selection contests, meritocracy, risk taking

JEL Classification: C72, D82, J01

Suggested Citation

Fang, Dawei and Noe, Thomas H., Less Competition, More Meritocracy? (November 14, 2019). Available at SSRN: https://ssrn.com/abstract=3282723 or http://dx.doi.org/10.2139/ssrn.3282723

Dawei Fang (Contact Author)

Göteborg University - Center For Finance ( email )

Box 640
Gothenburg, 403 50
Sweden

Göteborg University - Department of Economics ( email )

Sweden

Thomas H. Noe

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 3BJ
United Kingdom

University of Oxford - Balliol College ( email )

Broad St
Oxford, OX1 3BJ
United Kingdom

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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