## The Limits of Meritocracy

_IMF Working Papers, November 1, 2018_

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**Canonical URL:** [The Limits of Meritocracy](https://www.imf.org/en/publications/wp/issues/2018/11/01/the-limits-of-meritocracy-46298)

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- [Markdown version](/en/publications/wp/issues/2018/11/01/the-limits-of-meritocracy-46298/index.md)
- [Structured JSON version](/en/publications/wp/issues/2018/11/01/the-limits-of-meritocracy-46298/index.json)
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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

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### 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

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## Content in this bundle

- **The Limits of Meritocracy, WP/18/231, November 2018**
  - [The Limits of Meritocracy, WP/18/231, November 2018 (Markdown version)](/-/media/files/publications/wp/2018/wp18231.pdf.md){rel="alternate" type="text/markdown"}
  - [The Limits of Meritocracy, WP/18/231, November 2018 (PDF)](/-/media/files/publications/wp/2018/wp18231.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2018/11/01/the-limits-of-meritocracy-46298_