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Subjective Performance Evaluations, Self-esteem, and Ego-threats in Principal-agent Relations

  • Alexander Sebald

    (Department of Economics, University of Copenhagen)

  • Markus Walzl

    (Bamberg University)

We conduct a laboratory experiment with agents working on and principals benefiting from a real effort task in which the agents’ effort/performance can only be evaluated subjectively. Principals give subjective performance feedback to agents and agents have an opportunity to sanction principals. We find that agents sanction whenever the feedback of principals is below their subjective self-evaluations even if the agents’ payoff is independent of the principals’ feedback. Based on our experimental analysis we propose a principal-agent model with subjective performance evaluations that accommodates this finding. We analyze the agents’ (optimal) behavior, optimal contracts, and social welfare in this environment.

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File URL: http://www.econ.ku.dk/english/research/publications/wp/dp_2010/1018.pdf/
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 10-18.

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Length: 18 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:kud:kuiedp:1018
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  1. Ellingsen, Tore & Johannesson, Magnus, 2006. "Pride and Prejudice: The Human Side of Incentive Theory," CEPR Discussion Papers 5768, C.E.P.R. Discussion Papers.
  2. Olivier Compte & Andrew Postlewaite, 2003. "Confidence-Enhanced Performance," PIER Working Paper Archive 03-009, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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