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The Benefits of Limited Feedback in Organizations

Author

Listed:
  • Stephen Eliot
  • Stephen E. 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 & Stephen E. Hansen, 2015. "The Benefits of Limited Feedback in Organizations," Working Papers 490, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:490
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    References listed on IDEAS

    as
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    More about this item

    Keywords

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    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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