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Prehire Screening and Subjective Performance Evaluations

Author

Listed:
  • Bin R. Chen

    (Business School, Sun Yat-sen University, Guangzhou 510275, China)

  • Sanxi Li

    (School of Economics, Renmin University of China, Beijing 100872, China)

Abstract

We study a two-stage model in which the agent’s ability is initially unknown to any party, but the principal can choose a prehire screening scheme to discover the agent’s ability before offering a contract. Perfect screening enables the principal to fine-tune the contract to the agent’s ability, but it also prevents her from enforcing a contract that is contingent on subjective interim performance measures. Given that interim performance measures are critical for motivating first-stage effort, the principal may benefit from adopting no screening or partial screening. When partial screening is employed, the halo effect—a commonly observed bias in subjective evaluation practices—emerges in the equilibrium.

Suggested Citation

  • Bin R. Chen & Sanxi Li, 2018. "Prehire Screening and Subjective Performance Evaluations," Management Science, INFORMS, vol. 64(10), pages 4953-4965, October.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:10:p:4953-4965
    DOI: 10.287/mnsc.2017.2860
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    References listed on IDEAS

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