The Benefits of Aggregate Performance Metrics in the Presence of Career Concerns
This paper considers the desirability of aggregate performance measures in light of the fact that many individuals' performance incentives are driven by a desire to shape external perceptions (and thus pay). In contrast to the case of explicit contracts, we find that when individuals' actions are driven by implicit career incentives, aggregate (summary) measures can sometimes alleviate moral hazard concerns and improve efficiency. Summarization intermingles performance measures which are differentially affected by skill and effort. Such entanglement increases the prospect that the market will attribute effort-driven successes to the agent's innate skill rather than to his effort, rewarding him accordingly going forward. This possibility encourages the employee to exert higher effort as a means of posturing to the external market. The incentive benefit of aggregation is weighed against the incentive cost due to information loss. Information loss from aggregation can reduce the market's reliance on the measure and, thus, diminish the agent's desire to influence it by exerting effort.
|Date of creation:||01 Sep 2007|
|Date of revision:||01 Jan 2009|
|Contact details of provider:|| Web page: http://icf.som.yale.edu/|
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.:
- Murphy, K.J. & Gibbons, R., 1990.
"Optimal Incentive Contracts in the Presence of Career Concerns : Theory and Evidence,"
90-09, Rochester, Business - Managerial Economics Research Center.
- Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June.
- Robert Gibbons & Kevin J. Murphy, 1991. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," NBER Working Papers 3792, National Bureau of Economic Research, Inc.
- Gibbons, R. & Murphy, K.J., 1990. "Optimal Incentive Contracts In The Presence Of Career Concerns: Theory And Evidence," Working papers 563, Massachusetts Institute of Technology (MIT), Department of Economics.
- Autrey, Romana L. & Dikolli, Shane S. & Paul Newman, D., 2007. "Career concerns and mandated disclosure," Journal of Accounting and Public Policy, Elsevier, vol. 26(5), pages 527-554.
- Feltham, Gerald & Indjejikian, Raffi & Nanda, Dhananjay, 2006. "Dynamic incentives and dual-purpose accounting," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 417-437, December.
- Fudenberg, Drew & Tirole, Jean, 1990.
"Moral Hazard and Renegotiation in Agency Contracts,"
Econometric Society, vol. 58(6), pages 1279-1319, November.
- Drew Fudenberg & Jean Tirole, 1988. "Moral Hazard and Renegotiation in Agency Contracts," Working papers 494, Massachusetts Institute of Technology (MIT), Department of Economics.
- Meyer, Margaret A & Vickers, John, 1995.
"Performance Comparisons and Dynamic Incentives,"
CEPR Discussion Papers
1107, C.E.P.R. Discussion Papers.
- Milbourn, Todd T & Shockley, Richard L & Thakor, Anjan V, 2001. "Managerial Career Concerns and Investments in Information," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 334-51, Summer.
- Gigler, Frank & Hemmer, Thomas, 2002. "Informational costs and benefits of creating separately identifiable operating segments," Journal of Accounting and Economics, Elsevier, vol. 33(1), pages 69-90, February.
- Emmanuelle Auriol & Guido Friebel & Lambros Pechlivanos, 2002. "Career Concerns in Teams," Journal of Labor Economics, University of Chicago Press, vol. 20(2), pages 289-307, Part.
- Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
- Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
- Bengt Holmstrom & Joan Ricart i Costa, 1986. "Managerial Incentives and Capital Management," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 835-860.
When requesting a correction, please mention this item's handle: RePEc:ysm:somwrk:amz2549. 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: ()
If references are entirely missing, you can add them using this form.