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Optimal Design of Peer Review and Self-Assessment Schemes

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  • Sandeep Baliga
  • Tomas Sjostrom

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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  • Sandeep Baliga & Tomas Sjostrom, 1999. "Optimal Design of Peer Review and Self-Assessment Schemes," Discussion Papers 1290, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1290
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    References listed on IDEAS

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    4. Tamada, Yasunari & Tsai, Tsung-Sheng, 2007. "Optimal organization in a sequential investment problem with the principal's cancellation option," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 631-641, June.
    5. Johnson, Justin P., 2006. "Collaboration, peer review and open source software," Information Economics and Policy, Elsevier, vol. 18(4), pages 477-497, November.
    6. Gromb, Denis & Martimort, David, 2007. "Collusion and the organization of delegated expertise," Journal of Economic Theory, Elsevier, vol. 137(1), pages 271-299, November.
    7. Tamada, Yasunari & Tsai, Tsung-Sheng, 2014. "Delegating the decision-making authority to terminate a sequential project," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 178-194.
    8. Andreas Roider, 2006. "Delegation of Authority as an Optimal (In)Complete Contract," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(3), pages 391-411, September.
    9. Harbaugh, Richmond & To, Theodore, 2020. "False modesty: When disclosing good news looks bad," Journal of Mathematical Economics, Elsevier, vol. 87(C), pages 43-55.
    10. 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.
    11. Dilip Mookherjee, 2006. "Decentralization, Hierarchies, and Incentives: A Mechanism Design Perspective," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 367-390, June.
    12. Alexander K. Koch & Julia Nafziger, 2012. "Job Assignments under Moral Hazard: The Peter Principle Revisited," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(4), pages 1029-1059, December.
    13. Noriyuki Yanagawa, 2008. "Biased Motivation of Experts: Should They be Aggressive or Conservative?," CARF F-Series CARF-F-133, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
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    16. Carrillo, Juan D., 2003. "Job assignments as a screening device," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 881-905, June.

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