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Communicating Subjective Evaluations

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  • Matthias Lang

Abstract

Consider managers evaluating their employees’ performance. Should managers justify their subjective evaluations? To answer this question, I study justifications: Suppose a manager’s evaluation is private information. To justify her evaluation, she can gather additional information that allows the agent to partially cross-check the evaluation. I show that the manager justifies her evaluation if and only if the evaluation indicates bad performance. The justification assures the employee that the manager has not distorted the evaluation downwards. For good performances, however, the manager pays a constant high wage without justification. Empirical literature demonstrates that subjective evaluations discriminate poorly between good performances. This pattern was attributed to biased managers. I show that these effects occur in optimal contracts without any biased behavior.

Suggested Citation

  • Matthias Lang, 2014. "Communicating Subjective Evaluations," CESifo Working Paper Series 4830, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_4830
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    References listed on IDEAS

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    Cited by:

    1. Helmut Bester & Johannes Münster, 2016. "Subjective evaluation versus public information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(4), pages 723-753, April.

    More about this item

    Keywords

    communication; justification; subjective evaluation; information acquisition; centrality; leniency; disclosure;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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