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Communicating Subjective Evaluations

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  • Matthias Lang

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn)

Abstract

Should principals explain and justify their evaluations? Suppose the principal's evaluation is private information, but she can provide justi cation by sending a costly cheap-talk message. If she does not provide justi cation, her message space is restricted, but the message is costless. I show that the principal justi es her evaluation to the agent if the evaluation indicates bad performance. The justi cation assures the agent that the principal has not distorted the evaluation downwards. In equilibrium, the wage increases in the agent's performance, when the principal justi es her evaluation. For good performance, however, the principal pays a constant high wage without justi cation.

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Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2012_14.

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Date of creation: Jun 2012
Date of revision: Mar 2014
Handle: RePEc:mpg:wpaper:2012_14

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Keywords: Communication; Justification; Subjective evaluation; Stochastic contracts; Disclosure;

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Cited by:
  1. Bester, Helmut & Münster, Johannes, 2013. "Subjective evaluation versus public information," Discussion Papers 2013/6, Free University Berlin, School of Business & Economics.

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