Good news and bad news in subjective performance evaluation

Jörg Budde

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: Earlier studies show that contracts under subjective performance evaluation are dichotomous and punish only worst performance. I show that with limited liability payments need not be binary. More importantly, if the agent earns a rent from limited liability, the optimal contract distinguishes only signals of good news and bad news of the agent’s action.

Keywords: bonus; monotone likelihood ratio; wage compression (search for similar items in EconPapers)
JEL-codes: D82 M52 M54 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-cta, nep-hrm and nep-mic
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