Economics Brown Bag Seminar Series - Jun Xiao (The University of Melbourne)

Title: Whether to Hire A(nother) Superstar

Abstract: Contests are widely used to motivate participants' performance in companies, schools and sports. This paper studies when a participant's increased productivity is encouraging and increases other participants' performance, and when it is discouraging and reduces the others' performance. We find that, if the prize sequence's convexity--measured in the second order differences among the prize values--is low enough, the discouraging effect arises more frequently with less productive participants; if the prize sequence's convexity is high enough, the discouraging effect arises more frequently with more heterogeneous participants. We also identify the situations in which a participant's increased productivity decreases/increases the total expected performance.