Fishing for Excuses and Performance Evaluation
We study a principal-agent model in which the agent can provide ex post additional relevant information regarding his performance. In particular, he can provide a legitimate excuse, that is, evidence that a poor result is only due to factors outside his control. However, building a convincing case requires time, time that is not spent on exerting productive effort, and thus generating information represents an opportunity cost. We obtain necessary and sufficient conditions for the principal to prefer a policy of adjusting ex post the performance measure for the information provided by the agent to a policy of conforming to a result-based system with no adjustments. The risk aversion and a possible limited liability of the agent play an important role in the analysis. This paper clarifies the issues associated with the so-called “excuse culture” prevailing in some organizations.
|Date of creation:||2014|
|Date of revision:|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bentley W. MacLeod, 2003.
"Optimal Contracting with Subjective Evaluation,"
American Economic Review,
American Economic Association, vol. 93(1), pages 216-240, March.
- Joel S. Demski & Hans Frimor & David E. M. Sappington, 2004. "Efficient Manipulation in a Repeated Setting," Journal of Accounting Research, Wiley Blackwell, vol. 42(1), pages 31-49, 03.
- Sunil Dutta, 2002. "The Effect of Earnings Forecasts on Earnings Management," Journal of Accounting Research, Wiley Blackwell, vol. 40(3), pages 631-655, 06.
- Drew Fudenberg & Jean Tirole, 1988.
"Moral Hazard and Renegotiation in Agency Contracts,"
494, Massachusetts Institute of Technology (MIT), Department of Economics.
- Fudenberg, Drew & Tirole, Jean, 1990. "Moral Hazard and Renegotiation in Agency Contracts," Econometrica, Econometric Society, vol. 58(6), pages 1279-1319, November.
- Larmande, Francois, 2013. "Limited liability, the first-order approach, and the ranking of information systems in agencies," Economics Letters, Elsevier, vol. 118(2), pages 314-317.
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_4569. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe)
If references are entirely missing, you can add them using this form.