Advanced Search
MyIDEAS: Login

The Benefits of Aggregate Performance Metrics in the Presence of Career Concerns

Contents:

Author Info

  • Anil Arya
  • Brian Mittendorf
Registered author(s):

    Abstract

    This paper considers the desirability of aggregate performance measures in light of the fact that many individuals' performance incentives are driven by a desire to shape external perceptions (and thus pay). In contrast to the case of explicit contracts, we find that when individuals' actions are driven by implicit career incentives, aggregate (summary) measures can sometimes alleviate moral hazard concerns and improve efficiency. Summarization intermingles performance measures which are differentially affected by skill and effort. Such entanglement increases the prospect that the market will attribute effort-driven successes to the agent's innate skill rather than to his effort, rewarding him accordingly going forward. This possibility encourages the employee to exert higher effort as a means of posturing to the external market. The incentive benefit of aggregation is weighed against the incentive cost due to information loss. Information loss from aggregation can reduce the market's reliance on the measure and, thus, diminish the agent's desire to influence it by exerting effort.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://icfpub.som.yale.edu/publications/2549
    Download Restriction: no

    Bibliographic Info

    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number amz2549.

    as in new window
    Length:
    Date of creation: 01 Sep 2007
    Date of revision: 01 Jan 2009
    Handle: RePEc:ysm:somwrk:amz2549

    Contact details of provider:
    Web page: http://icf.som.yale.edu/
    More information through EDIRC

    Related research

    Keywords: Aggregation; Career concerns; Implicit incentives;

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Fudenberg, Drew & Tirole, Jean, 1990. "Moral Hazard and Renegotiation in Agency Contracts," Econometrica, Econometric Society, vol. 58(6), pages 1279-1319, November.
    2. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
    3. Emmanuelle Auriol & Guido Friebel & Lambros Pechlivanos, 2002. "Career Concerns in Teams," Journal of Labor Economics, University of Chicago Press, vol. 20(2), pages 289-307, Part.
    4. Meyer, Margaret A & Vickers, John, 1997. "Performance Comparisons and Dynamic Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 547-81, June.
    5. Bengt Holmstrom & I. Ricard & Joan Costa, 1984. "Managerial Incentives and Capital Management," Cowles Foundation Discussion Papers 729, Cowles Foundation for Research in Economics, Yale University.
    6. Robert Gibbons & Kevin J. Murphy, 1991. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," NBER Working Papers 3792, National Bureau of Economic Research, Inc.
    7. Milbourn, Todd T & Shockley, Richard L & Thakor, Anjan V, 2001. "Managerial Career Concerns and Investments in Information," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 334-51, Summer.
    8. Gigler, Frank & Hemmer, Thomas, 2002. "Informational costs and benefits of creating separately identifiable operating segments," Journal of Accounting and Economics, Elsevier, vol. 33(1), pages 69-90, February.
    9. Autrey, Romana L. & Dikolli, Shane S. & Paul Newman, D., 2007. "Career concerns and mandated disclosure," Journal of Accounting and Public Policy, Elsevier, vol. 26(5), pages 527-554.
    10. Feltham, Gerald & Indjejikian, Raffi & Nanda, Dhananjay, 2006. "Dynamic incentives and dual-purpose accounting," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 417-437, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ysm:somwrk:amz2549. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.