General Seminar Series No. 13 – Assistant Professor Erik Madsen (New York University)

Incentive Design for Talent Discovery

We study how talent discovery within organizations distorts employee task choices. These choices are generally suboptimal when employees seek to earn promotions which are awarded based on perceived talent. They can be improved through incentive schemes which pay bonuses and/or reallocate promotions between employees. We show that the optimal incentive tool depends on the desired power of incentives, with low-powered incentives provisioned through bonuses and high-powered incentives achieved by reallocating promotions. Organizations can sometimes further benefit by dividing employees into groups with different promotion rates and bonuses, which we show eliminates the need to promote inefficiently within groups.

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Fred Gruen Economics Seminar Room (H.W. Arndt Bldg 25A)
Assistant Professor Erik Madsen (New York University)