IDEAS home Printed from https://ideas.repec.org/p/kud/kuiedp/0819.html
   My bibliography  Save this paper

How Ego-threats Facilitate Contracts Based on Subjective Evaluations

Author

Listed:
  • Alexander Sebald

    (Department of Economics, University of Copenhagen)

  • Markus Walzl

    (Department of Economics, University of Maastricht)

Abstract

We show that individuals’ desire to protect their self-esteem against ego-threatening feedback can mitigate moral hazard in environments with purely subjective performance evaluations. In line with evidence from social psychology we assume that agents’ react aggressively to evaluations by the principal which do not coincide with their own positive self-perceptions and thereby generate costs of conflict for the principal. We identify conditions for a positive welfare effect of increasing costs of conflict or increasing sensitivity to ego-threats, and a negative welfare effect of a more informative information technology. As a consequence, principals may choose imperfect information technologies in equilibrium even if the signal quality is costless.

Suggested Citation

  • Alexander Sebald & Markus Walzl, 2008. "How Ego-threats Facilitate Contracts Based on Subjective Evaluations," Discussion Papers 08-19, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0819
    as

    Download full text from publisher

    File URL: http://www.econ.ku.dk/english/research/publications/wp/2008/0819.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
    2. Falk, Armin & Fischbacher, Urs, 2006. "A theory of reciprocity," Games and Economic Behavior, Elsevier, vol. 54(2), pages 293-315, February.
    3. Bentley W. MacLeod, 2003. "Optimal Contracting with Subjective Evaluation," American Economic Review, American Economic Association, vol. 93(1), pages 216-240, March.
    4. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May.
    5. Sebald, Alexander, 2007. "Procedural Concerns," MPRA Paper 4508, University Library of Munich, Germany.
    6. Tore Ellingsen & Magnus Johannesson, 2008. "Pride and Prejudice: The Human Side of Incentive Theory," American Economic Review, American Economic Association, vol. 98(3), pages 990-1008, June.
    7. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
    8. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
    9. Botond Köszegi, 2006. "Ego Utility, Overconfidence, and Task Choice," Journal of the European Economic Association, MIT Press, vol. 4(4), pages 673-707, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alexander Sebald & Markus Walzl, 2012. "Optimal contracts based on subjective evaluations and reciprocity," Working Papers 2012-16, Faculty of Economics and Statistics, Universität Innsbruck, revised Nov 2014.
    2. Sebald, Alexander & Walzl, Markus, 2015. "Optimal contracts based on subjective performance evaluations and reciprocity," Journal of Economic Psychology, Elsevier, vol. 47(C), pages 62-76.
    3. Alexander Sebald & Markus Walzl, 2010. "Subjective Performance Evaluations, Self-esteem, and Ego-threats in Principal-agent Relations," Discussion Papers 10-18, University of Copenhagen. Department of Economics.
    4. Charles Bellemare & Alexander Sebald, 2018. "Self-Confidence and Reactions to Subjective Performance Evaluations," CESifo Working Paper Series 7325, CESifo.
    5. Macera, Rosario, 2018. "Intertemporal incentives under loss aversion," Journal of Economic Theory, Elsevier, vol. 178(C), pages 551-594.
    6. Chassang, Sylvain & Zehnder, Christian, 2016. "Rewards and punishments: informal contracting through social preferences," Theoretical Economics, Econometric Society, vol. 11(3), September.
    7. Alexander Sebald & Markus Walzl, 2014. "Subjective Performance Evaluations and Reciprocity in Principal–Agent Relations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(2), pages 570-590, April.
    8. Calabuig, Vicente & Fatas, Enrique & Olcina, Gonzalo & Rodriguez-Lara, Ismael, 2016. "Carry a big stick, or no stick at all," Journal of Economic Psychology, Elsevier, vol. 57(C), pages 153-171.
    9. von Siemens, Ferdinand A., 2013. "Intention-based reciprocity and the hidden costs of control," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 55-65.
    10. Barmettler, Franziska & Fehr, Ernst & Zehnder, Christian, 2012. "Big experimenter is watching you! Anonymity and prosocial behavior in the laboratory," Games and Economic Behavior, Elsevier, vol. 75(1), pages 17-34.
    11. Ivan Soraperra & Anton Suvorov & Jeroen Van de Ven & Marie Claire Villeval, 2019. "Doing Bad to Look Good: Negative Consequences of Image Concerns on Prosocial Behavior," Revue économique, Presses de Sciences-Po, vol. 70(6), pages 945-966.
    12. Gill, David & Stone, Rebecca, 2010. "Fairness and desert in tournaments," Games and Economic Behavior, Elsevier, vol. 69(2), pages 346-364, July.
    13. Non, Arjan, 2012. "Gift-exchange, incentives, and heterogeneous workers," Games and Economic Behavior, Elsevier, vol. 75(1), pages 319-336.
    14. Fahn, Matthias, 2019. "Reciprocity in Dynamic Employment Relationships," Rationality and Competition Discussion Paper Series 198, CRC TRR 190 Rationality and Competition.
    15. Gary Bolton & Peter Werner, 2016. "The influence of potential on wages and effort," Experimental Economics, Springer;Economic Science Association, vol. 19(3), pages 535-561, September.
    16. Christian Thoeni & Simon Gaechter, 2011. "Peer Effects and Social Preferences in Voluntary Cooperation," Discussion Papers 2011-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    17. Dufwenberg, Martin & Servátka, Maroš & Vadovič, Radovan, 2017. "Honesty and informal agreements," Games and Economic Behavior, Elsevier, vol. 102(C), pages 269-285.
    18. Shchetinin, Oleg, 2009. "Contracting Under Reciprocal Altruism," MPRA Paper 13457, University Library of Munich, Germany.
    19. Bjorn Bartling & Ernst Fehr & Klaus M. Schmidt, 2012. "Screening, Competition, and Job Design: Economic Origins of Good Jobs," American Economic Review, American Economic Association, vol. 102(2), pages 834-864, April.
    20. Maroš Servátka & Steven Tucker & Radovan Vadovič, 2011. "Building Trust—One Gift at a Time," Games, MDPI, vol. 2(4), pages 1-22, September.

    More about this item

    Keywords

    contracts; Subjective evaluations; self-esteem; ego-threats;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kud:kuiedp:0819. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Hoffmann (email available below). General contact details of provider: https://edirc.repec.org/data/okokudk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.