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Communicating subjective evaluations

Author

Listed:
  • Lang, Matthias

Abstract

Consider managers evaluating their employees' performances. Should managers justify their subjective evaluations? Suppose a manager's evaluation is private information. Justifying her evaluation is costly but limits the principal's scope for distorting her evaluation of the employee. I show that the manager justifies her evaluation if and only if the employee's performance was poor. The justification assures the employee that the manager has not distorted the evaluation downwards. For good performance, however, the manager pays a constant high wage without justification. The empirical literature demonstrates that subjective evaluations are lenient and discriminate poorly between good performance levels. This pattern was attributed to biased managers. I show that these effects can occur in optimal contracts without any biased behavior. (C) 2018 Elsevier Inc. All rights reserved.

Suggested Citation

  • Lang, Matthias, 2019. "Communicating subjective evaluations," Munich Reprints in Economics 78243, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:78243
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    Cited by:

    1. Matthias Lang, 2023. "Stochastic contracts and subjective evaluations," RAND Journal of Economics, RAND Corporation, vol. 54(1), pages 104-134, March.
    2. 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.
    3. Matthias Lang, 2020. "Mechanism Design with Narratives," CESifo Working Paper Series 8502, CESifo.
    4. Daniel Rehsmann & Béatrice Roussillon & Paul Schweinzer, 2023. "Contesting Fake News," CESifo Working Paper Series 10632, CESifo.

    More about this item

    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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