Investment Tournaments: When Should a Rational Agent Put All Eggs in One Basket?

• 成果类型: Article
• 署名作者: Schwarz, Michael; Severinov, Sergei
• 署名单位: University of British Columbia
• 刊物名称: JOURNAL OF LABOR ECONOMICS
• ISSN/ISSBN: 0734-306X
• DOI: 10.1086/653504
• 发表日期: 2010
• 页码: 893-922
• 关键词: law firms; rat race; CONTRACTS; COMPENSATION; incentives; prizes

摘要

We study investment tournaments, a class of decision problems involving gradual allocation of investment among several alternatives whose values are subject to shocks. The decision maker's payoff is determined by the final values of the alternatives. An important example of such tournaments is the career choice problem, since a person typically starts by investing in learning several professions. We show that in many cases it is optimal for the decision maker to allocate all resources to the most promising alternative in each time period. We also show that in promotion tournaments the workers optimally exert higher efforts at an early stage in order to capture a larger share of employer's investment, such as mentoring.