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The Benefits of Limited Feedback in Organizations

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  • Stephen Eliot Hansen

Abstract

In most firms, managers periodically assess workers' performance. Evidence suggests that managers with hold information during these reviews, and some observers argue that this necessarily reduces surplus. This paper assesses the validity of this argument when workers have career concerns. Disclosure has two effects: it exposes the worker to uncertainty about future effort levels, but allows him to use current effort to influence his employer's beliefs about future effort. The surplus-maximizing disclosure policy reveals output realizations in the center of the distribution, but not in the tails. Thus, it is efficient for firms to reveal some but not all performance information.

Suggested Citation

  • Stephen Eliot Hansen, 2010. "The Benefits of Limited Feedback in Organizations," Working Papers 490, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:490
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    References listed on IDEAS

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    1. Ghazala Azmat & Nagore Iriberri, 2010. "The Provision of Relative Performance Feedback Information: An Experimental Analysis of Performance and Happiness," Working Papers 454, Barcelona Graduate School of Economics.
    2. Arijit Mukherjee, 2008. "Career Concerns, Matching, And Optimal Disclosure Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1211-1250, November.
    3. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, Oxford University Press, vol. 95(4), pages 703-736.
    4. Alexander K. Koch & Eloïc Peyrache, 2011. "Aligning Ambition and Incentives," Journal of Law, Economics, and Organization, Oxford University Press, pages 655-688.
    5. William Fuchs, 2007. "Contracting with Repeated Moral Hazard and Private Evaluations," American Economic Review, American Economic Association, pages 1432-1448.
    6. Shintaro Yamaguchi, 2010. "Job Search, Bargaining, and Wage Dynamics," Journal of Labor Economics, University of Chicago Press, vol. 28(3), pages 595-631, July.
    7. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, pages 255-267.
    8. Aoyagi, Masaki, 2010. "Information feedback in a dynamic tournament," Games and Economic Behavior, Elsevier, vol. 70(2), pages 242-260, November.
    9. Michael Waldman, 1983. "Job Assignments, Signalling nad Efficiency," UCLA Economics Working Papers 286, UCLA Department of Economics.
    10. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, pages 329-348.
    11. Florian Ederer, 2010. "Feedback and Motivation in Dynamic Tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 733-769, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Performance Appraisal; Career Concerns; Incentives; risk;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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