scholarly journals Delegating performance evaluation

2020 ◽  
Vol 15 (2) ◽  
pp. 477-509 ◽  
Author(s):  
Igor Letina ◽  
Shuo Liu ◽  
Nick Netzer
Keyword(s):  
Performance Evaluation ◽  
Incentive Contracts ◽  
Multiple Agents ◽  
Research Grants ◽  
Worker Compensation ◽  
Leniency Bias ◽  
All Pay Auction

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.

Evaluating Firefighters' Performance

1983 ◽  
Vol 53 (3_suppl) ◽  
pp. 1219-1222 ◽  
Author(s):  
Lawrence Allen
Keyword(s):  
Performance Evaluation ◽  
Data Analysis ◽  
Evaluation System ◽  
Performance Ratings ◽  
Performance Evaluation System ◽  
Leniency Bias

This study compared the performance ratings of 171 firefighters over a 1½-yr. period using a newly developed performance evaluation system. The objective was to develop an evaluation system that would not discriminate against blacks and that would eliminate a strong leniency bias in effect for all firefighters. Data analysis for three separate rating periods showed that there were no significant differences between scores of whites and blacks and that the leniency bias had been eliminated.

scholarly journals Managerial Collusive Behavior under Asymmetric Incentive Schemes

2015 ◽  
Vol 15 (2) ◽  
Author(s):  
Jean-Daniel Guigou ◽  
Patrick de Lamirande
Keyword(s):  
Performance Evaluation ◽  
Incentive Contracts ◽  
Relative Performance ◽  
Relative Performance Evaluation ◽  
Incentive Schemes

AbstractWe analyze the effects of asymmetry in incentive contracts on the possibility of collusion between managers. When their compensation is based on the relative performance evaluation contracts, managers can achieve better outcomes by colluding. Using the concept of balanced temptation introduced by

Optimal incentive contracts with multiple agents

1984 ◽  
Vol 33 (1) ◽  
pp. 152-171 ◽  
Author(s):  
Joel S Demski ◽  
David Sappington
Keyword(s):  
Incentive Contracts ◽  
Multiple Agents

The Determinants and Performance Effects of Managers' Performance Evaluation Biases

2011 ◽  
Vol 86 (5) ◽  
pp. 1549-1575 ◽  
Author(s):  
Jasmijn C Bol
Keyword(s):  
Performance Evaluation ◽  
Employee Motivation ◽  
Data Availability ◽  
Perceived Fairness ◽  
Future Performance ◽  
Confidentiality Agreement ◽  
Leniency Bias ◽  
Performance Effects ◽  
Employee Incentives ◽  
And Performance

ABSTRACT This study examines the determinants and performance effects of centrality bias and leniency bias. The results show that managers respond to their own incentives and preferences when subjectively evaluating performance. Specifically, information-gathering costs and strong employee-manager relationships positively affect centrality bias and leniency bias. The findings also indicate that performance evaluation biases affect not only current performance ratings, but also future employee incentives. Inconsistent with predictions based on the agency perspective, the results show that managers' performance evaluation biases are not necessarily detrimental to compensation contracting. Although centrality bias negatively affects performance improvement, the evidence does not reveal a significant negative relation between leniency bias and performance. Rather, leniency bias is positively associated with future performance, which is consistent with the behavioral argument that bias can improve perceived fairness and, in turn, employee motivation. Data Availability: Data used in this study cannot be made public due to a confidentiality agreement with the participating firm.

Compensation contracts for multiple agents with helping effort under bilateral moral hazard

2021 ◽  
Vol 40 (1) ◽  
pp. 271-293
Author(s):  
Xiulan Wang ◽  
Xiaoli Wu
Keyword(s):  
Performance Evaluation ◽  
Moral Hazard ◽  
Optimal Strategy ◽  
Stackelberg Game ◽  
Contract Design ◽  
Relative Performance ◽  
Relative Performance Evaluation ◽  
Multiple Agents ◽  
Compensation Contracts ◽  
Personal Performance

This paper aims to investigate the compensation contract design problem consisting of a risk neutral firm and two risk averse workers with and without helping effort in the presence of bilateral moral hazard by Stackelberg game in the framework of principal-agent theory. Three classes of contract models are established in three modes, which reflect whether helping effort takes place between both workers and whether personal performance evaluation contract or relative performance evaluation contract is applied by the firm. By solving models, optimal efforts of the firm, optimal individual and workgroup incentive coefficients, optimal personal effort and helping effort, and the firm’s expected profit are deduced in different modes. In addition, a numerical experiment is investigated by focusing on the impacts of effort cost coefficients of the firm and the worker, and bilateral moral hazard on optimal compensation contracts and profit of the firm in three modes, which provide some valuable management insights about optimal strategy for the firm. The main findings show that the relative performance evaluation contract works better than the personal performance evaluation contract when the two workers is cooperative, which means that helping effort takes place between the two workers. Furthermore, a higher marginal contribution can motive the worker to make more helping effort for her partner, thus achieving win-win outcome based on the relationship of cooperation. For the firm, the optimal strategy is to design the relative performance evaluation contract for both workers and motivate them to make cooperative relationship by exerting helping effort under bilateral moral hazard. Moreover, bilateral moral hazard decreases the motivations of the workers but increases the firm’s profit. This proposed work contributes to the investigation of compensation contract design by combining three critical factors, that is, multiple agents, bilateral moral hazard, and helping effort. The findings provide some theoretical guidance on how to set up optimal mechanism between the firm and multiple agents in the presence of bilateral moral hazard and how to reduce the adverse influence of bilateral moral hazard on participants’ profits.

An optimum multiple outcomes sharing model with multiple risk-averse agents

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
S. Mahdi Hosseinian ◽  
Elham Farahpour ◽  
David G. Carmichael
Keyword(s):  
Incentive Contracts ◽  
Complex Nature ◽  
Multiple Agents ◽  
Multiple Outcomes ◽  
Private Companies ◽  
Content Type ◽  
Construction Contracts ◽  
Proposed Model ◽  
Underlying Basis ◽  
Level Of Effort

PurposeThe purpose of this paper is to propose an optimum form of incentive contracts with multiple outcomes and multiple agents.Design/methodology/approachUtility theory and principal-agent theory provide the underlying basis for this paper. A sample of 60 practitioners from public organizations and private companies participated in an exercise to validate the proposed model.FindingsThe paper shows that, in outcome sharing contracts, the contributions of agents toward outcomes are positively related, while agent effort costs, outcome uncertainty, outcome correlation and agent level of risk aversion are negatively related. The paper further demonstrates that outcome sharing is positively associated with the level of effort selected by the agents.Originality/valueOutcome sharing models might be used in construction contracts to encourage the agent to act in the interests of the principal. However, few studies have looked at contracts with multiple outcomes and multiple agents. This paper contributes to the current practice of contract management through simplifying the complex nature of multiple incentive contracts and providing theoretical guidance for multi arrangements.

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