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Dynamic Evaluation Design

Author

Listed:
  • Alex Smolin

Abstract

A principal owns a firm, hires an agent of uncertain productivity, and designs a dynamic policy for evaluating his performance. The agent observes ongoing evaluations and decides when to quit. When not quitting, the agent is paid a wage that is linear in his expected productivity; the principal claims the residual performance. After quitting, the players secure fixed outside options. I show that equilibrium is Pareto efficient. For a broad class of performance technologies, the equilibrium wage deterministically grows with tenure. My analysis suggests that endogenous performance evaluation plays an important role in shaping careers in organizations.

Suggested Citation

  • Alex Smolin, 2021. "Dynamic Evaluation Design," American Economic Journal: Microeconomics, American Economic Association, vol. 13(4), pages 300-331, November.
    • Handle: RePEc:aea:aejmic:v:13:y:2021:i:4:p:300-331
    DOI: 10.1257/mic.20170405
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    Citations

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    Cited by:

    1. Zhao, Wei & Mezzetti, Claudio & Renou, Ludovic & Tomala, Tristan, 2024. "Contracting over persistent information," Theoretical Economics, Econometric Society, vol. 19(2), May.
    2. Aleksei Smirnov & Egor Starkov, 2019. "Timing of predictions in dynamic cheap talk: experts vs. quacks," ECON - Working Papers 334, Department of Economics - University of Zurich.
    3. Jacopo Bizzotto & Adrien Vigier, 2021. "Can a better informed listener be easier to persuade?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(3), pages 705-721, October.
    4. Orlov, Dmitry, 2022. "Frequent monitoring in dynamic contracts," Journal of Economic Theory, Elsevier, vol. 206(C).
    5. Ashkenazi-Golan, Galit & Hernández, Penélope & Neeman, Zvika & Solan, Eilon, 2023. "Markovian persuasion with two states," LSE Research Online Documents on Economics 119970, London School of Economics and Political Science, LSE Library.
    6. Ashkenazi-Golan, Galit & Hernández, Penélope & Neeman, Zvika & Solan, Eilon, 2023. "Markovian persuasion with two states," Games and Economic Behavior, Elsevier, vol. 142(C), pages 292-314.
    7. Heski Bar‐Isaac & Clare Leaver, 2022. "Training, Recruitment, and Outplacement as Endogenous Adverse Selection," Economica, London School of Economics and Political Science, vol. 89(356), pages 849-861, October.
    8. Jan Knoepfle, 2024. "Dynamic Competition for Attention," Papers 2409.18595, arXiv.org, revised Oct 2024.
    9. Li, Xuelin & Szydlowski, Martin & Yu, Fangyuan, 2025. "Dynamic information design in an entry game," Journal of Economic Theory, Elsevier, vol. 226(C).
    10. Szydlowski, Martin, 2024. "Fomenting conflict," Journal of Economic Theory, Elsevier, vol. 220(C).
    11. Benjamin Brooks & Alexander Frankel & Emir Kamenica, 2022. "Information Hierarchies," Econometrica, Econometric Society, vol. 90(5), pages 2187-2214, September.
    12. Hyeonggyun Ko, 2025. "Persuasion in the Long Run: When history matters," Papers 2508.01662, arXiv.org.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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