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Role Of Relative And Absolute Performance Evaluations In Intergroup Competition

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  • HITOSHI MATSUSHIMA

Abstract

We investigate the moral hazard problem in which a principal delegates multiple tasks to multiple workers. The principal imperfectly monitors their action choices by observing the public signals that are correlated with each other through a macro shock. He divides the workers into two groups and makes them compete with each other. We show that when the number of tasks is sufficiently large, relative performance evaluation between the groups accompanied by absolute performance evaluation results in eliminating unwanted equilibria. In this case, any approximate Nash equilibrium nearly induces the first-best allocation.

Suggested Citation

  • Hitoshi Matsushima, 2010. "Role Of Relative And Absolute Performance Evaluations In Intergroup Competition," The Japanese Economic Review, Japanese Economic Association, vol. 61(4), pages 443-454, December.
  • Handle: RePEc:bla:jecrev:v:61:y:2010:i:4:p:443-454
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    File URL: http://hdl.handle.net/10.1111/j.1468-5876.2010.00520.x
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    References listed on IDEAS

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    More about this item

    Keywords

    D20 ; D80 ; J33 ; L23 ;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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