Delegating performance evaluation

Igor Letina, Shuo Liu () and Nick Netzer
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Shuo Liu: Guanghua School of Management, Peking University

Theoretical Economics, 2020, vol. 15, issue 2

Abstract: We study optimal incentive contracts with multiple agents when performance is evaluated by a reviewer. The reviewer may be biased in favor of the agents, but the degree of bias is unknown to the principal. We show that a contest, which is a contract in which the principal fixes a set of prizes to be allocated to the agents, is optimal. By using a contest, the principal can commit to sustaining incentives despite the reviewer's potential leniency bias. The optimal effort profile can be uniquely implemented by an all-pay auction with a cap. Our analysis has implications for various applications, such as the design of worker compensation or the allocation of research grants.

Keywords: Subjective performance evaluation; mechanism design without money; optimal delegation; optimality of contests (search for similar items in EconPapers)
JEL-codes: D02 D82 M52 (search for similar items in EconPapers)
Date: 2020-05-01
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Citations: View citations in EconPapers (14)

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