Prehire Screening and Subjective Performance Evaluations

Bin R. Chen () and Sanxi Li
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Bin R. Chen: Business School, Sun Yat-sen University, Guangzhou 510275, China

Management Science, 2018, vol. 64, issue 10, 4953-4965

Abstract: We study a two-stage model in which the agent’s ability is initially unknown to any party, but the principal can choose a prehire screening scheme to discover the agent’s ability before offering a contract. Perfect screening enables the principal to fine-tune the contract to the agent’s ability, but it also prevents her from enforcing a contract that is contingent on subjective interim performance measures. Given that interim performance measures are critical for motivating first-stage effort, the principal may benefit from adopting no screening or partial screening. When partial screening is employed, the halo effect—a commonly observed bias in subjective evaluation practices—emerges in the equilibrium.

Keywords: prehire screening; interim performance evaluation; subjective evaluation; halo effect (search for similar items in EconPapers)
Date: 2018
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