On the Paradox of Mediocracy

44 Pages Posted: 16 Jun 2020

See all articles by Qiang Fu

Qiang Fu

National University of Singapore (NUS)

Ming Li

Concordia University; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Xue Qiao

Tsinghua University - School of Economics & Management

Date Written: April 19, 2020

Abstract

We consider a two-agent hierarchical organization with a leader and a manager in a reputation-signaling model. The manager proposes an innovative but risky project to the leader, and decides whether to exert an effort to improve the value of the project, which benefits the organization. The leader decides whether to endorse the project or block it. The leader’s competence is her private information, and the market updates its belief about the leader’s type based on observation of her action (endorsing the project or blocking it) and its outcome. In equilibrium, the leader could behave excessively conservatively when she is subject to reputation concerns. We have two main findings. First, aside from its usual distortionary effects, the leader’s reputation concern has a beneficial effect by inducing the manager to supply productive effort and improves the organization’s performance. Second, there exists a non-monotonic relationship between the perceived competence of the leader and the performance of the organization. As a result, a paradox of mediocracy emerges: The organization may benefit from a seemingly mediocre leader, as a mediocre leader motivates the manager to exert effort, which offsets the efficiency loss due to incorrect decisions.

Keywords: Leadership, Meritocracy, Organizational Performance, Reputation Concerns, Managerial Effort

JEL Classification: C72, D23, D72, D82

Suggested Citation

Fu, Qiang and Li, Ming and Qiao, Xue, On the Paradox of Mediocracy (April 19, 2020). Available at SSRN: https://ssrn.com/abstract=3608508 or http://dx.doi.org/10.2139/ssrn.3608508

Qiang Fu

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

Ming Li (Contact Author)

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

HOME PAGE: http://alcor.concordia.ca/~mingli

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Xue Qiao

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
15
Abstract Views
218
PlumX Metrics