Relative performance evaluation in organizations with information networks

Xiangyu Shi

Economic Theory Bulletin, 2023, vol. 11, issue 2, No 9, 243-254

Abstract: Abstract I build on Bandiera et al. (Quarter. J. Econ. 120(3):917–962, 2005) and propose a novel mechanism whereby the structure of social network within an organization matters for its efficiency. The ability of each agent is private information, but adjacent agents in the network can observe each other’s ability. Under relative performance evaluation, the effect of adding links among agents on the effort level is ambiguous, and is determined by the second- (complementarity) and third-order (“risk” attitude) cross-partial derivatives of the compensation function. If the second- and third-order cross-partial derivatives of the compensation function satisfy certain conditions, any network structure can maximize the output given that compensation scheme.

Keywords: Relative performance evaluation; Principal-multiagent model; Information; Network (search for similar items in EconPapers)
JEL-codes: C72 D82 D85 D86 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s40505-023-00256-4

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