Talent vs. Wealth in a Credentials-Based Meritocracy : A Theoretical Study

A meritocracy is modeled as a multiple-prize contest among agents who are heterogeneously endowed with talent and wealth and thus vary in the disutility of exerting effort and spending money to earn credentials. In equilibrium, many richer but less-talented agents obtain better credentials than many poorer but more-talented ones. The paper studies the cost of the credentials race as well as the difference between the set of winning agents and the set of most-talented agents. Findings indicate that a meritocracy that relies on earned credentials may degenerate into a mediocracy that favors the wealthy and leaves the winners with little gain net of the cost of their credentials