Peer Evaluation: Incentives and Co-Worker Relations
AbstractIn many workplaces co-workers have the best information about each other's effort. Managers may attempt to exploit this information through peer evaluation. I study peer evaluation in a pure moral hazard model of production by two limitedly liable agents. Agents receive a signal about their colleague's effort level, and are asked to report it to the principal. The principal may give an individual bonus for the receipt of a positive evaluation by a colleague, which stimulates effort as long as signals are revealed truthfully. A cost of lying ascertains that there can be truthful revelation. I show that interpersonal relations between colleagues constrain the bonus for receiving a positive evaluation in order to keep evaluations truthful. Still, the principal will always include such a bonus in the optimal contract, and possibly complement it with a team bonus. Co-worker relations have non-monotic effects on profits in the optimal contract.
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Date of creation: 28 May 2010
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peer evaluation; peer appraisal; incentive contracts; co-worker relations; likeability bias;
Find related papers by JEL classification:
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- M50 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-26 (All new papers)
- NEP-BEC-2011-02-26 (Business Economics)
- NEP-CTA-2011-02-26 (Contract Theory & Applications)
- NEP-HRM-2011-02-26 (Human Capital & Human Resource Management)
- NEP-LAB-2011-02-26 (Labour Economics)
- NEP-URE-2011-02-26 (Urban & Real Estate Economics)
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