Economics Seminar（2017-05）

Title: On the Paradox of Mediocracy

Speaker: Qiang Fu, National University of Singapore

Time: Tuesday, May 9, 14:00-15:30

Place: Room217, Guanghua Building 2

Abstract

We consider an organization with a leader and a manager. The manager proposes an innovative but risky project to the leader. The leader decides whether to endorses the project or block it. The leader’s competence is privately known to the leader, and the market updates its belief about the leader’s type based on the observations of her action (endorsing the project or blocking it) and the outcome of her action. The leader could behave excessively conservatively when she is subject to reputation concerns. The manager decides whether to exert an effort to improve the intrinsic quality of the project, which benefits the organization. There exists a trade-off between the efficiency gain created by the leader’s competence and the manager’s incentive to supply effort. We show that there exists a nonmonotone relationship between the estimated competence of the leader and the welfare of the organization. That is, the organization may suffer when its leader is perceived to be more competent. We further study the role played by organizational transparency in the framework.

Introduction

Qiang Fu is an associate professor of economics at NUS Business School, National University of Singapore. Qiang graduated from Guanghua School of Management, Peking University in 1998. He received M.Sc in Management from National University of Singapore in 2000. He pursued his Ph.D in economics at Indiana University from 2000 to 2005, and taught at NUS Business School thereafter. Qiang Fu is an applied game theorist. His research interests focus on the economics of contests and tournaments, career concern model, and political economy.

//www.fu-qiang.info/

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