Tournament-Based Performance Evaluation and Systematic Misallocation: Why Forced Ranking Systems Produce Random Outcomes

Jeremy McEntire

Home/Archive/arXiv

arXiv · 2512.06583

Tournament-Based Performance Evaluation and Systematic Misallocation: Why Forced Ranking Systems Produce Random Outcomes

Jeremy McEntire

View original source ↗Read source document ↗Export metadata ↓

Abstract

Tournament-based compensation schemes with forced distributions represent a widely adopted class of relative performance evaluation mechanisms in technology and corporate environments. These systems mandate within-team ranking and fixed distributional requirements (e.g., bottom 15% terminated, top 15% promoted), ostensibly to resolve principal-agent problems through mandatory differentiation. We demonstrate through agent-based simulation that this mechanism produces systematic classification errors independent of implementation quality. With 994 engineers across 142 teams of 7, random team assignment yields 32% error in termination and promotion decisions, misclassifying employees purely through composition variance. Under realistic conditions reflecting differential managerial capability, error rates reach 53%, with false positives and false negatives each exceeding correct classifications. Cross-team calibration (often proposed as remedy) transforms evaluation into influence contests where persuasive managers secure promotions independent of merit. Multi-period dynamics produce adverse selection as employees observe random outcomes, driving risk-averse behavior and high-performer exit. The efficient solution (delegating judgment to managers with hierarchical accountability) cannot be formalized within the legal and coordination constraints that necessitated forced ranking. We conclude that this evaluation mechanism persists not through incentive alignment but through satisfying demands for demonstrable process despite producing outcomes indistinguishable from random allocation. This demonstrates how formalization intended to reduce agency costs structurally increases allocation error.

Explore related subjects

econ.GN q-fin.EC

Keep this discovery

Explore connections, maps & timelines

BibTeX RIS

Jeremy McEntire. 2025-12-06. Tournament-Based Performance Evaluation and Systematic Misallocation: Why Forced Ranking Systems Produce Random Outcomes. https://arxiv.org/abs/2512.06583

Cite the original work for its findings. Save a collection to share your selection of sources.

KEEP EXPLORING

Related papers

arXiv2026

Reducing Prescription Errors Through Information Intervention: A Field Experiment in Healthcare Operations

Drug-drug interaction (DDI) errors pose serious risks to patient safety. Existing decision-support systems often require physicians to respond to alerts, disrupting workflows and contributing to high override rates. We examine whether a non-mandatory information intervention can reduce DDI errors and foster learning. Using a randomized field experiment with India's largest electronic medical record platform, we analyze 2.81 million prescriptions from 1,700 physicians using a difference-in-differences design. Treatment physicians received real-time information highlighting DDI errors without being required to respond, while control physicians received no such information. The intervention reduced DDI errors by 8.6%, corresponding to an estimated US$4.8 million in annual hospitalization cost savings and approximately 134 lives potentially saved. We identify two mechanisms: reactive correction, whereby physicians remove errors after they are flagged, and proactive learning, whereby they avoid errors before alerts occur. While early reductions are driven primarily by correction, physicians increasingly avoid errors over time. They also become less likely to repeat previously flagged errors and reduce new errors, suggesting that learning generalizes beyond specific drug pairs. The effects are consistent across physician types and do not compromise productivity or care quality. Our findings show that non-mandatory information interventions can improve patient safety through both immediate error correction and persistent, generalizable learning.

econ.GN↗

arXiv2026

How an Economy Shrinks in Space: Concavity-on-Jobs and Upward Consolidation under Demographic Decline

When a country's population declines, the aggregate economy appears to contract on the intensive margin: industrial diversity intact, every industry a little smaller. At the regional level, contraction is uneven and takes the extensive form: entire industries disappear, one after another. The relevant unit is the city: industries are nested by size - the hierarchy property of industrial location - each viable only above a minimum population. Necessity industries' thresholds bunch at the low end, so a city's industry count - and its jobs - is sharply concave in size (concavity on jobs). A modest loss pushes a small city below many thresholds at once; a large core sheds a few specialized industries, one at a time. Lost industries consolidate upward to the next city large enough to host them; for the worker it means a step down to a lower-paid local job. To recover that income, workers move up to the apex - the only city hosting the full industry range. Studying Japan - two decades ahead of the OECD, Tokyo at its apex - with worker-level panel data on the young workers who carry the migration, a wage regression in real, housing-inclusive wages identifies a Tokyo-bound migration incentive that varies by origin, following concavity on jobs.

econ.GN↗

arXiv2026

Do wind and solar curtail at negative electricity prices? Incentives and evidence across two decades of German renewable support schemes

In many power systems, wind and solar generation increasingly often exceeds electricity demand. Curtailing renewable generation in those hours matters both for prices and for the physical stability of the grid. Turning off wind turbines and solar panels is technically easier than ramping down a large power station, yet support schemes often give renewables an economic incentive to keep producing at negative prices. This paper studies wind and solar energy in Germany. For each cohort of generators it estimates, hour by hour, the incentive implied by two decades of support policy. It then sets those incentives against observed behavior, using a new estimate of market-based curtailment built from reanalysis weather data. I find that in 2025, at prices below -50 EUR/MWh, almost all wind generators had an incentive to stop producing, but only half of them did. Solar is the opposite case: nearly two thirds of the potential had no incentive to curtail at all, mostly because it receives a feed-in tariff that shields it from wholesale prices. Of the exposed remainder, just over a fifth cut production. Low exposure and response rates inflate subsidy payments and make the power system harder to operate safely. I conclude that a further expansion of wind and solar requires them to respond to price signals.

econ.GN↗