Inducing Effort Through Grades

David Rodina () and John Farragut ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We study the problem of a principal who wants to incentivize an agent's investment in productivity through an information disclosure policy. The agent participates in a market and benefits from an improved perception of his productivity. Under asymmetric information about the agent's ability we explore how qualitative features of the optimal deterministic grading scheme depend on the distribution of the agent's ability. Perhaps surprisingly, random grades can induce higher investment. When the effect of the agent's investment is subject to exogenous shocks and there is no asymmetric information, in a wide variety of circumstances the optimal disclosure policy has a relatively simple threshold form.

Keywords: Information; Design (search for similar items in EconPapers)
JEL-codes: D8 (search for similar items in EconPapers)
Pages: 34
Date: 2020-10
New Economics Papers: this item is included in nep-mic and nep-reg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2020_221

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