Meritocracy and Inequality

Abstract

The paper develops a model of career concerns in which agents (i) publicly choose between several activities in which to exert effort, yet (ii) differ along a privately observable characteristic ("wealth") that affects their performance. Such heterogeneity enables agents to engage in additional signal jamming. We highlight a displacement effect: the "poor" avoid the activity chosen by the "rich" to avoid a lower image. Hence, all else being equal, the rich choose the most rewarding activity and displace the poor towards less rewarding activities, and because in equilibrium, the poor thus face lower incentives, they exert less effort. We interpret the model in light of recent debates on "meritocracy", and discuss several policy proposals, emphasizing their unintended consequences stemming from displacement.