Competing for Talents Damiano, Ettore; Li, Hao; Suen, Wing

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Damiano, Ettore ; Li, Hao ; Suen, Wing
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Journal of Economic Theory
sorting; Economics; Business
To link to full-text access for this article, visit this link: Byline: Ettore Damiano (a), Hao Li (b), Wing Suen (c) Keywords: Peer effect; Resource distribution; Sorting; Organization competition Abstract: Two organizations compete for high quality agents from a fixed population of heterogeneous qualities by designing how to distribute their resources among members according to their quality ranking. The peer effect induces both organizations to spend the bulk of their resources on higher ranks in an attempt to attract top talents that benefit the rest of their membership. Equilibrium is asymmetric, with the organization with a lower average quality offering steeper increases in resources per rank. High quality agents are present in both organizations, while low quality agents receive no resources from either organization and are segregated by quality into the two organizations. A stronger peer effect increases the competition for high quality agents, resulting in both organizations concentrating their resources on fewer ranks with steeper increases in resources per rank, and yields a greater equilibrium difference in average quality between the two organizations. Author Affiliation: (a) Department of Economics, University of Toronto, 150 St. George street, Toronto, ON M5S 3G7, Canada (b) Department of Economics, University of British Columbia, Canada (c) School of Economics and Finance, The University of Hong Kong, Hong Kong Article History: Received 24 June 2009; Revised 28 December 2011; Accepted 29 December 2011 Article Note: (footnote) [star] We thank Dirk Bergemann, Simon Board, Jeff Ely, Christian Hellwig, Mike Peters, two anonymous referees and seminar audiences at University of British Columbia, Columbia University, Duke University, University of Michigan, University of Southern California, University of Toronto, University of Western Ontario and Yale University for helpful comments and suggestions.
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