The Limits of Meritocracy

When it comes to meritocracy, it is possible to have too much of a good thing, according to Felix Várdy . When success is determined by relative performance, performance evaluation needs to be sufficiently meritocratic in order to provide the right incentives. However, it does not follow that pursuing ever greater meritocracy maximizes prosperity, neither in terms of productive efficiency nor in terms of total output. The reason is that too much meritocracy discourages lower ability types and, in turn, makes higher ability types complacent. Even among homogeneous contestants, excessive meritocracy is harmful because it induces people to drop out. This illustrates that a good idea may turn bad when pursued to excess.

During his stay at CESifo, Mr Várdy will be working with Justin Tumlinson on this phenomenon.

Felix Várdy is a senior economist at the International Monetary Fund in Washington, DC, focusing on applied game theory and political economy. Before (re-)joining the Fund, he taught at UC Berkeley, worked in the World Bank's Chief Economist Office for Latin America and in the Financial Services Division of the Netherlands Competition Authority. He is a CESifo Research Network Affiliate and has recently co-authored a CESifo Working Paper (5539) entitled "The Ponds Dilemma". He specialises in the application of information economics to game theory and political economy.