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Moral hazard in teams with subjective evaluations

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  • Chen Cheng

Abstract

This article studies moral hazard in teams where workers' wages depend on two types of performance measures: objective team output and subjective evaluations. The evaluations include both self‐ and peer evaluations. I find that when evaluations become less subjective, workers' wages should be more sensitive not only to their evaluations but also to the team's output. I also show that subjective evaluations should be used in relative terms only when the degree of subjectivity is not too high. The results also associate the introduction of a budget breaker with the level of subjectivity within organizations.

Suggested Citation

  • Chen Cheng, 2021. "Moral hazard in teams with subjective evaluations," RAND Journal of Economics, RAND Corporation, vol. 52(1), pages 22-48, March.
    • Handle: RePEc:bla:randje:v:52:y:2021:i:1:p:22-48
    DOI: 10.1111/1756-2171.12360
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    References listed on IDEAS

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    Cited by:

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    2. Xinhao He & Jin Li & Zhaoneng Yuan, 2022. "Optimal Subjective Contracting with Revision," Management Science, INFORMS, vol. 68(8), pages 6346-6354, August.

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