NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Shanglyu Deng

Department of Economics
University of Maryland
3114 Tydings Hall
7343 Preinkert Dr.
College Park, MD 20742

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: University of Maryland

NBER Working Papers and Publications

May 2020Confidence Management in Tournaments
with Hanming Fang, Qiang Fu, Zenan Wu: w27186
An incumbent employee competes against a new hire for bonus or promotion. The incumbent’s ability is commonly known, while that of the new hire is private information. The incumbent is subject to a perceptional bias: His prior about the new hire’s type differs from the true underlying distribution. He can be either ex ante overconfident or underconfident. We first explore whether a firm that aims to maximize aggregate effort would benefit or suffer from the bias. It is shown that debiasing may not be productive in incentivizing efforts. We then study the optimal information disclosure policy. The firm is allowed to ex ante commit to whether an informative signal—which allows the incumbent to infer the new hire’s type—will be disclosed publicly. We fully characterize the conditions under wh...
 
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