Relative Performance Evaluation and Limited Liability

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Relative Performance Evaluation and Limited Liability

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V. Bhaskar ()

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V Bhaskar

Abstract

We analyze the role of relative performance evaluation when a principal has several agents, who face correlated shocks. If limited liability constraints are binding, relative performance evaluation may be of no value if the principal is restricted to symmetric contracts. However, with asymmetric contracts, where agents are induced to choose different effort levels, relative performance measures can be used in order to reduce informational rents. Relative performance evaluation is a way of reducing the rents of the high effort agent, who will in general be worse off than the low effort agent.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 550.

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Date of creation: 21 Oct 2002
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Handle: RePEc:esx:essedp:550

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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.:

Dilip Mookherjee & Debraj Ray, 2002. "Contractual Structure and Wealth Accumulation," American Economic Review, American Economic Association, vol. 92(4), pages 818-849, September. [Downloadable!]
Other versions:
- Dilip Mookherjee & Debraj Ray, 2000. "Contractual Structure and Wealth Accumulation," Boston University - Institute for Economic Development 107, Boston University, Institute for Economic Development.
- Dilip Mookherjee & Debraj Ray, 2000. "Contractual Structure and Wealth Accumulation," Econometric Society World Congress 2000 Contributed Papers 1538, Econometric Society. [Downloadable!]
Dilip Mookherjee, 1997. "Wealth Effects, Incentives and Productivity," Boston University - Institute for Economic Development 77, Boston University, Institute for Economic Development.
Other versions:
- Mookherjee, Dilip, 1997. "Wealth Effects, Incentives, and Productivity," Review of Development Economics, Blackwell Publishing, vol. 1(1), pages 116-33, February. [Downloadable!] (restricted)
Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [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.)

Kaniska Dam & David Perez-Castrillo, 2003. "The Principal-Agent Matching Market," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Other versions:
- Kaniska Dam & David Pérez-Castrillo, 2001. "The Principal-Agent Matching Market," UFAE and IAE Working Papers 503.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
- Kaniska Dam & David Perez-Castrillo, 2006. "The Principal-Agent Matching Market," The B.E. Journal of Theoretical Economics, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
Oriana Bandiera (STICERD & LSE, 2004. "Relative and Absolute Incentives: Evidence on Worker Productivity," Econometric Society 2004 North American Summer Meetings 277, Econometric Society. [Downloadable!]
Other versions:
- Bandiera, Oriana & Barankay, Iwan & Rasul, Imran, 2004. "Relative and Absolute Incentives: Evidence on Worker Productivity," CEPR Discussion Papers 4431, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Orana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," Natural Field Experiments 0014, The Field Experiments Website. [Downloadable!]
Other versions:
- Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 917-962, August.

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