UC Berkeley

I explore competition in three different settings. First, I examine how a contest designer can increase total efforts through softening incentives. In particular, softer incentives are called for when the following is met: contestants have more convex costs, there are many contestants, or designers have (sufficient) concave valuation of effort. In the extreme, more total effort can be generated from offering a larger second than first prize.

Next, I test this theory experimentally in the lab under the framing of personnel economics. I find the general comparative statics given above hold. However, on an individual basis, people depart from the theoretical predictions. Workers use a heuristic of going "all in" or abstaining from work when they find themselves above or below, respectively, some private target level of ability. Additionally, most workers take on different roles-slackers, quitters, or consistent workers--depending on the institutional setting (i.e., degree of competition and incentives structure). The consequence of such behavior is the comparative statics for optimal organizational design are softened.

Finally, I study empirically and theoretically how firms compete on the dimension of corporate social responsibility (CSR). More efficient firms are able to use CSR as an insurance mechanism. That is, some firms invest ex-ante in higher levels of CSR, which enables them to better withstand the tumult of negative business shocks; stakeholders give higher CSR firms the benefit of the doubt in terms of the cause of an adverse event (i.e., the cause is more often attributed to bad luck over bad management), resulting in an insurance like benefit to CSR. This finding is validated empirically by studying S&P500 firms over a 16 year period.