Dynamic Evaluation Design

Alex Smolin

American Economic Journal: Microeconomics, 2021, vol. 13, issue 4, 300-331

Abstract: A principal owns a firm, hires an agent of uncertain productivity, and designs a dynamic policy for evaluating his performance. The agent observes ongoing evaluations and decides when to quit. When not quitting, the agent is paid a wage that is linear in his expected productivity; the principal claims the residual performance. After quitting, the players secure fixed outside options. I show that equilibrium is Pareto efficient. For a broad class of performance technologies, the equilibrium wage deterministically grows with tenure. My analysis suggests that endogenous performance evaluation plays an important role in shaping careers in organizations.

JEL-codes: D21 D82 D83 J24 J31 J41 M51 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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DOI: 10.1257/mic.20170405

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