Subjective Performance Evaluation and Collusion
This paper considers a principal-agent relationship and explores the incentive provision when the agent's performance cannot be verified. It contrasts two alternatives for the principal to provide incentives: (i) to subjectively evaluate the agent's performance; and (ii), to delegate this task to a supervisor. Supervision induces contractible information about the agent's performance, but could result in vertical collusion. This paper demonstrates that collusion-proofness can require an inefficiently high payment to the supervisor, and too low powered incentives for the agent. The eventuality of collusion is further found to potentially (i), improve the profitability; and (ii), facilitate the achievement of relational contracts based upon subjective performance evaluations.
|Date of creation:||31 Mar 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jonathan Levin, 2003.
"Relational Incentive Contracts,"
American Economic Review,
American Economic Association, vol. 93(3), pages 835-857, June.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:2472. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.