ECON 306 Lecture Notes - Lecture 17: Mandatory Retirement, Adverse Selection, Perverse Incentive
24 May 2017
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Again, even if there is only a very small difference between individuals" skills/talent, it can lead to a very big difference in the vmp of the very best and the second best. The much higher pay for the best than the second best is economically rational (w = People try to win the tournament for the prize. Reverse causality: the higher wage causes higher productivity. (winner takes all, huge incentive for the people below to be the best for the big increase in wage) The tournament creates some problems: incentive for the others to do some espionage, to see what the others are doing and sabotage in order to be the one to win. A lot of time and productivity can be wasted when people are trying to appear more productive than they are (sucking up) Same for university and tenure you"ve got to be the best at publishing.
