Delegating performance evaluation

Igor Letina, Shuo Liu and Nick Netzer

No 266, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We study optimal incentive contracts with multiple agents when performance evaluation is delegated to 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 determines 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 applications as diverse as the design of worker compensation, the awarding of research grants, and the allocation of foreign aid.

Keywords: Performance evaluation; delegation; optimality of contests (search for similar items in EconPapers)
JEL-codes: D02 D82 M52 (search for similar items in EconPapers)
Date: 2017-10, Revised 2018-11
New Economics Papers: this item is included in nep-cta, nep-des, nep-hrm and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: Delegating performance evaluation (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:266

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