– I’m extremely honored and grateful to receive the Hans Dalborg Award. It is a great encouragement and recognition for the value of my existing research. This recognition can also help me disseminate my research, not only to other researchers but hopefully to practitioners as well, Dawei Fang says.
Studies contests in finance and economics
Dawei Fang’s research focuses on how competitive environments and contests affect such things as productivity, risk taking and personnel systems in finance and economics settings.
– These contests are supposed to induce hard work, to identify talent, and to make capital allocation and job assignment more efficient. However, to what extent these goals can be achieved by contests and how to properly design contests to achieve these goals are far from being clear without a good understanding of how competitors behave and interact. My research aims to provide such an understanding.
Contest are common in many large corporations where employees get promotions based on grades. In the mutual fund industry fund managers have league-table incentives where they compete for example to reach high Morningstar ratings. However, Dawei Fang says, it is not self-evident that the competition raises productivity.
– If one believes in the tradeoff between equity and efficiency, then one might think that competitors should compete harder in highly competitive contests where few receive rewards but the rewards for the chosen few are lavish. However, my paper published in the Journal of Political Economy shows that making contests more competitive can in fact be counterproductive, Dawei Fang says.
Small rewards can be the most encouraging
With small chances of topping their rivals, competitors may be more discouraged by the low odds than they are encouraged by the large rewards. Therefore, in an environment where competitors have similar abilities, offering many small prizes can be more encouraging than offering a few large prizes.
– The results in this paper suggest that many policies that dial down competitive pressure may actually motivate increased effort. Examples include sales contests which reward the majority of salespeople, promotion policies that promote all but the worst performing employees, soft grading curves at selective universities.
The prize ceremony for the Hans Dalborg Award will take place on May 13, 2020, where Dawei Fang will give a short talk about his research in the Swedish House of Finance annual meeting.
