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Optimal Design of Peer Review and Self-Assessment Schemes

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Author Info
Sandeep Baliga (Northwestern University)

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Abstract

A principal must decide whether or not to implement a project which originated with one of her employees. The employees have private information about the quality of the project. A successfully implemented project raises the inventor's chance of promotion, at his peer's expense, but a failed project may ruin the inventor's career. If the inventor is already ahead in his career, then he may be tempted to suppress his own ideas in order not to risk a big failure. If he is not ahead, then he is instead tempted to exaggerate the quality of his ideas in order to get ahead. The peer may either try to promote the inventor's bad ideas to see him fail, or to denigrate promising ideas to stop the inventor from getting ahead. Within the class of incentive compatible and renegotiation-proof mechanisms, self-assessment (without any peer reports) is optimal. Truthtelling can be guaranteed in different ways. For example, to avoid the exaggeration effect, the inventor can be promised some chance of promotion even if his project is cancelled, or he can be paid a relatively high wage when he is not promoted. We show how the optimal method depends on the parameters.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1516.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1516

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  4. Steven D. Levitt & Christopher M. Snyder, 1997. "Is No. News Bad News? Information Transmission and the Role of "Early Warning" in the Principal-Agent Model," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 641-661, Winter. [Downloadable!] (restricted)
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  6. Holmstrom, Bengt, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Blackwell Publishing, vol. 66(1), pages 169-82, January. [Downloadable!] (restricted)
  7. Sandeep Baliga & Tomas Sjostrom, 1997. "Not Invented Here," Discussion Papers 1213, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  8. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June. [Downloadable!] (restricted)
  9. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Prendergast, Canice & Topel, Robert H, 1996. "Favoritism in Organizations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 958-78, October. [Downloadable!] (restricted)
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  11. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February. [Downloadable!] (restricted)
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  12. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-36, May. [Downloadable!] (restricted)
  13. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jonathan Treussard, 2005. "Life-Cycle Consumption Plans and Portfolio Policies in a Heath-Jarrow-Morton Economy," Boston University - Department of Economics - Working Papers Series WP2005-033, Boston University - Department of Economics. [Downloadable!]
  2. Jim Engle-Warnick & Andreas Leibbrandt, 2006. "Who Gets the Last Word? An Experimental Study of the Effect of a Peer Review Process on the Expression of Social Norms," CIRANO Working Papers 2006s-12, CIRANO. [Downloadable!]
    Other versions:
  3. Illoong Kwon, 2006. "Endogenous Favoritism in Organizations," Topics in Theoretical Economics, Berkeley Electronic Press, vol. 6(1), pages 1273-1273. [Downloadable!] (restricted)
  4. Andreas Roider, 2003. "Delegation of Authority as an Optimal (In)complete Contract," Bonn Econ Discussion Papers bgse8_2003, University of Bonn, Germany, revised Aug 2004. [Downloadable!]
    Other versions:
  5. Dolfsma, W.A., 2005. "Appropriability in Services," Research Paper ERS-2005-021-ORG Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  6. Alexander K. Koch & Julia Nafziger, 2007. "Job Assignments under Moral Hazard: The Peter Principle Revisited," IZA Discussion Papers 2973, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Noriyuki Yanagawa, 2008. "Biased Motivation of Experts: Should They be Aggressive or Conservative?," CIRJE F-Series CIRJE-F-585, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
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