The Rat Race as an Information Forcing Device
In many job settings, there will be some promotion criteria that are less amenable to measurement than others. Often, what is difficult to measure is more important. For example, possessing "good judgment" under pressure may be a better predictor of success as a law firm partner than the ability to bill a vast amount of hours. The first puzzle that this essay explores is why, in some promotion settings, organizations appear to focus on less important, but measurable, criteria such as hours billed. The answer lies in the relationship between the objectively measurable criteria, on the one hand, and the subjective and less visible (but more important) attributes on the other hand. Under certain circumstances, a competition over the measurable criteria, such as hours billed or number of deals accomplished, can force the revelation of information on hard-to-measure subjective attributes of the candidate such as judgment or collegiality. For example, it is easier to evaluate the judgment of an associate who has amassed a number of deals than one who has not. Some information about the associate's good and bad judgment is likely to be generated from the deals. So, while it makes little sense to promote associates based solely on billable hours, making billable hours the goal of the first round of a tournament, where the winners are awarded eligibility for consideration for partnership, can generate information more relevant to the second round partner selection decision.
Explaining the first puzzle leads to a second puzzle. If promotion tournaments over measurable criteria can be effectively utilized in the private sector to force information about candidate traits, why do we not see revelation tournaments elsewhere, where competition may generate information useful in evaluating candidates for promotion? The answer, we suggest, has to do at least in part with agency problems. Promotion tournaments based on measurable criteria limit the discretion of agents making the promotion decisions. When decision-makers have less discretion, the return to currying favor with those decision-makers falls. As a result, decision-makers with less discretion earn less "rent." Decision-makers acting as agents also enjoy a reduced ability to make promotion decisions according to their own preferences separate from the goals of their principals.