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Communicating Subjective Evaluations

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  • Matthias Lang

    () (Max Planck Institute for Research on Collective Goods, Bonn)

Abstract

Consider managers evaluating their employees' performance. Should managers justify their subjective evaluations? To scrutinize this question, I model justification: Suppose a manager's evaluation is private information. To justify her evaluation, she can gather additional information that is uninformative about her employee's effort. 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 are lenient and discriminate poorly between good performances. I show that both effects occur in optimal contracts without any biased behavior.

Suggested Citation

  • Matthias Lang, 2012. "Communicating Subjective Evaluations," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2012_14, Max Planck Institute for Research on Collective Goods, revised Apr 2017.
  • Handle: RePEc:mpg:wpaper:2012_14
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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
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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