Subjective Performance Evaluation and Inequality Aversion

Christian Grund and Judith Przemeck ()
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Judith Przemeck: University of Bonn

No 3382, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Many firms use subjective performance appraisal systems due to lack of objective performance measures. In these cases, supervisors usually have to rate the performance of their subordinates. Using such systems, it is a well established fact that many supervisors tend to assess the employees too good (leniency bias) and that the appraisals hardly vary across employees of a certain supervisor (centrality bias). We explain these two biases in a model with a supervisor, who has preferences for the utility of her inequality averse subordinates, and discuss determinants of the size of the biases. Extensions of the basic model include the role of supervisor’s favoritism of one particular agent and the endogenous effort choice of agents. Whether inequality averse agents exert higher efforts then purely self-oriented ones, depends on the size of effort costs and inequality aversion.

Keywords: performance evaluation; appraisals; centrality bias; inequality aversion; leniency bias (search for similar items in EconPapers)
JEL-codes: D63 M5 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008-03
New Economics Papers: this item is included in nep-bec and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published - revised (consirably shortened) version published as 'Subjective performance appraisal and inequality aversion' in: Applied Economics, 2012, 44 (17), 2149 - 2155

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