Mikhail Drugov (Universitat Autònoma de Barcelona / New Economic School)
Abstract
This paper studies the design of promotions in an organization where agents belong to different groups. Examples and applications include political groups, ethnicities, agents motivated by the work in the public sector, etc. In an overlapping generations model, juniors compete for promotions. Seniors have two kinds of discretion: direct discretion, which is immediately beneficial for their group, and promotion discretion ("patronage"), which is a bias in the promotion decision. Under two alternative objectives of the planner considered---maximizing juniors' efforts and shifting the steady-state composition of the seniors towards the preferred group---optimal patronage may be strictly positive.