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The Benefits of Limited Feedback in Organizations

  • Stephen Eliot Hansen
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    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 employers 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.

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    File URL: http://research.barcelonagse.eu/tmp/working_papers/490.pdf
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    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 490.

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    Date of creation: Jul 2010
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    Handle: RePEc:bge:wpaper:490
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    1. William Fuchs, 2005. "Contracting with Repeated Moral Hazard and Private Evaluations," Discussion Papers 04-012, Stanford Institute for Economic Policy Research.
    2. Aoyagi, Masaki, 2010. "Information feedback in a dynamic tournament," Games and Economic Behavior, Elsevier, vol. 70(2), pages 242-260, November.
    3. repec:dgr:uvatin:20070040 is not listed on IDEAS
    4. Alexander K. Koch & Eloic Peyrache, 2005. "Aligning Ambition and Incentives," Royal Holloway, University of London: Discussion Papers in Economics 05/03, Department of Economics, Royal Holloway University of London, revised Mar 2005.
    5. Ghazala Azmat & Nagore Iriberri, 2012. "The Provision of Relative Performance Feedback Information: An Experimental Analysis of Performance and Happiness," CEP Discussion Papers dp1116, Centre for Economic Performance, LSE.
    6. Florian Ederer, 2010. "Feedback and Motivation in Dynamic Tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 733-769, 09.
    7. Leonardo Martinez, 2006. "Reputation and Career Concerns," 2006 Meeting Papers 853, Society for Economic Dynamics.
    8. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    9. Medoff, James L & Abraham, Katharine G, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 703-36, December.
    10. 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.
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