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Delegating performance evaluation


Letina, Igor; Liu, Shuo; Netzer, Nick (2020). Delegating performance evaluation. Theoretical Economics, 15(2):477-509.

Abstract

We study optimal incentive contracts with multiple agents when performance is evaluated by a reviewer. The reviewer may be biased in favor of the agents, but the degree of bias is unknown to the principal. We show that a contest, which is a contract in which the principal fixes a set of prizes to be allocated to the agents, is optimal. By using a contest, the principal can commit to sustaining incentives despite the reviewer's potential leniency bias. The optimal effort profile can be uniquely implemented by an all-pay auction with a cap. Our analysis has implications for various applications, such as the design of worker compensation or the allocation of research grants.

Abstract

We study optimal incentive contracts with multiple agents when performance is evaluated by a reviewer. The reviewer may be biased in favor of the agents, but the degree of bias is unknown to the principal. We show that a contest, which is a contract in which the principal fixes a set of prizes to be allocated to the agents, is optimal. By using a contest, the principal can commit to sustaining incentives despite the reviewer's potential leniency bias. The optimal effort profile can be uniquely implemented by an all-pay auction with a cap. Our analysis has implications for various applications, such as the design of worker compensation or the allocation of research grants.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > General Economics, Econometrics and Finance
Uncontrolled Keywords:subjective performance evaluation, mechanism design without money, optimal delegation, optimality of contests
Language:English
Date:May 2020
Deposited On:07 Oct 2020 13:54
Last Modified:14 Oct 2020 10:59
Publisher:Society for Economic Theory
ISSN:1555-7561
OA Status:Gold
Free access at:Official URL. An embargo period may apply.
Publisher DOI:https://doi.org/10.3982/TE3570
Official URL:https://econtheory.org/ojs/index.php/te/article/view/3570
Related URLs:https://www.zora.uzh.ch/id/eprint/141281/

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