Communicating Subjective Evaluations

Matthias Lang

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: Should principals explain and justify their evaluations? Suppose the principal s evaluation is private information, but she can provide justification by sending a costly unverifiable message. If she does not provide justification, her message space is restricted, but the message is costless. I show that the principal justifies her evaluation to the agent if the evaluation indicates bad performance. The justification assures the agent that the principal has not distorted the evaluation downwards. In equilibrium, the wage increases in the agent s performance, when the principal justifies her evaluation. For good performance, however, the principal pays a constant high wage without justification.

JEL-codes: D82 D86 M52 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-hrm and nep-mic
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