The Limits of Meritocracy
IMF Working Papers, November 1, 2018
Source details
- Canonical URL
- The Limits of Meritocracy
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Bibliographic details
- Authors: John Morgan, Justin Tumlinson, Felix J Vardy
- Published: November 1, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484381175.001
Summary findings
- Too much meritocracy, modeled as accuracy of performance ranking in contests, can be harmful.
- In contests with homogeneous agents:
- Increased accuracy of performance ranking reduces output.
- Outcomes can be Pareto inefficient.
- In contests with sufficiently heterogeneous agents:
- Discouragement and complacency effects further reduce the benefits of meritocracy.
- Perfect meritocracy may be optimal only for intermediate levels of heterogeneity.
Analytical themes and mechanisms
- Meritocracy is modeled through the accuracy of performance ranking in contests.
- Key mechanisms identified:
- Competition effect: how ranking accuracy changes incentives to exert effort.
- Discouragement effect: high-ability agents demotivate lower-ability agents when rankings are accurate.
- Complacency effect: low marginal returns to effort for top-ranked agents when rankings reliably identify ability.
- Equilibrium behavior of agents under different levels of heterogeneity drives aggregate output and efficiency.
Policy implications and considerations
- Design of contest/prize schedules and participation prizes should account for agent heterogeneity when choosing how accurately to rank performance.
- Organizers should recognize that maximizing ranking accuracy (perfect meritocracy) is not always welfare-improving:
- For homogeneous populations, reducing ranking precision may raise aggregate output and improve Pareto outcomes.
- For highly heterogeneous populations, mitigating discouragement and complacency effects is important to preserve the benefits of merit-based incentives.
- Optimal contest design may require intermediate levels of meritocratic accuracy tailored to the distribution of agent abilities.
Subject classification and keywords
- Subject: Budget planning and preparation; Competition; Financial markets; Income inequality; National accounts; Public financial management (PFM)
- Keywords: aggregate output; Budget planning and preparation; Competition; competition effect; contest organizer; Efficiency; equilibrium behavior; Income inequality; Level Playing Field; Meritocracy; output measure; participation prize; prize schedule; study contest design; WP
Content in this bundle
- The Limits of Meritocracy, WP/18/231, November 2018