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There was an oversupply of officers. At any particular point in time many of the officers were “on the bench” at half pay.

This made it easy to replace underperforming officers with those on the bench

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Now do the part in brackets that appears to contradict it.

Ok I actually went and read the article by Allen, and I think LessWrong's paraphrasing is a bit sloppy. Allen's actual argument is that because all Royal Navy captains (not just those on half pay) are not permanent employees, they have the right to refuse any commission offered to them. They could then reject any commands that seem too dangerous or unprofitable. This would lead to adverse selection if there were no prize money (for capturing or sinking enemy ships, etc.) and they only received fixed wages. There would be little incentive for captains to take the unfavorable commissions. But the RN did have a very generous prize money system, and the prize money was often much greater than the regular wages. This means that even if a commission looked pretty bad, there was still the possibility of getting rich. Whereas there's no such opportunity at all if one's sitting on the shore. So captains rarely rejected commissions. It's basically akin to how startups usually offer more stock options and the chance to get rich in order to offset the higher risk and worse work/life balance compared to the BigCos.

> There would be little incentive for captains to take the unfavorable commissions. But the RN did have a very...

I suspect the RN was quite aware of the incentives facing captains, and could think a few moves ahead. And that captains understood their offers of commission weren't random - if you turned down a less-desirable one, you'd need friends in really high places for the RN to offer you anything better.

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