Abstract: Though individuals prefer to join groups with high quality peers, there are also advantages from being high up in the pecking order within a group. We show that sorting of agents in this environment results in an overlapping interval structure in the type space. Segregation and mixing coexist in a stable equilibrium. A greater degree of egalitarianism within organizations leads to greater segregation across organizations. Since competition is most intense for agents with intermediate talent, effective personnel policies to attract talent differ systematically between high-quality and low-quality organizations. When transfers are possible our stable equilibrium corresponds to a competitive equilibrium but entails too little segregation compared to the efficient assignment
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