Investment Tournaments: When Should a Rational Agent Put All Eggs in One Basket?

Michael Schwarz and Sergei Severinov

Journal of Labor Economics, 2010, vol. 28, issue 4, 893-922

Abstract: We study "investment tournaments," a class of decisionproblems involving gradual allocation of investment among severalalternatives whose values are subject to shocks. The decision maker'spayoff is determined by the final values of the alternatives. An important example of such tournaments is the career choice problem, since a person typically starts by investing in learning several professions.We show that in many cases it is optimal for the decision maker to allocate all resources to the most promising alternative in each time period. We also show that in promotion tournaments the workers optimally exert higher efforts at an early stage in order to capture a larger share of employer's investment, such as mentoring. (c) 2010 by The University of Chicago. All rights reserved.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://dx.doi.org/10.1086/653504 link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jlabec:v:28:y:2010:i:4:p:893-922

Access Statistics for this article

More articles in Journal of Labor Economics from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().