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Optimal contracts for lenient supervisors

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Author Info

  • Giebe, Thomas
  • Gürtler, Oliver

Abstract

We analyze optimal contracts in a hierarchy consisting of a principal, a supervisor and an agent. The supervisor is either neutral or altruistic towards the agent, but his preferences are private information. In a model with two supervisor types, we find that the optimal contract may be very simple, paying the supervisor a flat wage independent of his type and his evaluation of the agent's effort. Such a contract induces the neutral type of supervisor to report the agent's performance truthfully, while the altruistic type reports favorably independent of performance. Accordingly, overstated performance (leniency bias) may be the outcome of an optimal contract under informational asymmetries.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 81 (2012)
Issue (Month): 2 ()
Pages: 403-420

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Handle: RePEc:eee:jeborg:v:81:y:2012:i:2:p:403-420

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Subjective performance evaluation; Leniency; Supervisor; Private information;

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References

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Citations

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Cited by:
  1. Lucia Marchegiani & Tommaso Reggiani & Matteo Rizzolli, 2013. "Severity vs. Leniency Bias in Performance Appraisal: Experimental evidence," BEMPS - Bozen Economics & Management Paper Series BEMPS01, School of Economics and Management at the Free University of Bozen.
  2. Dur, Robert & Tichem, Jan, 2013. "Altruism and Relational Incentives in the Workplace," IZA Discussion Papers 7363, Institute for the Study of Labor (IZA).
  3. Andres, Christian & Fernau, Erik & Theissen, Erik, 2012. "Is it better to say goodbye? When former executives set executive pay," CFR Working Papers 12-02, University of Cologne, Centre for Financial Research (CFR).
  4. Golman, Russell & Bhatia, Sudeep, 2012. "Performance evaluation inflation and compression," Accounting, Organizations and Society, Elsevier, vol. 37(8), pages 534-543.
  5. repec:dgr:uvatin:2012054 is not listed on IDEAS
  6. Gürtler, Marc & Gürtler, Oliver, 2012. "The interaction of explicit and implicit contracts: A signaling approach," Working Papers IF38V1, Technische Universität Braunschweig, Institute of Finance.
  7. Jan Tichem, 2013. "Leniency Bias in Long-Term Workplace Relationships," Tinbergen Institute Discussion Papers 13-196/VII, Tinbergen Institute.
  8. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," CESifo Working Paper Series 3826, CESifo Group Munich.
  9. Matthias Lang, 2012. "Communicating Subjective Evaluations," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2012_14, Max Planck Institute for Research on Collective Goods, revised Mar 2014.
  10. Andres, Christian & Fernau, Erik & Theissen, Erik, 2013. "Should I stay or should I go? Former CEOs as monitors," CFR Working Papers 12-02 [rev.], University of Cologne, Centre for Financial Research (CFR).

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