Objective versus Subjective Performance Evaluations

Terstiege, Stefan (1. August 2013): Objective versus Subjective Performance Evaluations. SFB/TR 15 Discussion Paper No. 430

Abstract

Why does incentive pay often depend on subjective rather than objective performance evaluations? After all, subjective evaluations entail a credibility issue. While the most plausible explanation for this practice is lack of adequate objective measures, I argue that subjective evaluations might sometimes also be used to withhold information from the worker. I furthermore argue that withholding information is particularly important under circumstances where the credibility issue is small. The statements are derived from a two-stage principal-agent model in which the stochastic relationship between effort and performance is unknown.

• Item Type: Paper
• Keywords: Performance evaluation, principal-agent, moral hazard
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A5 - Unvollständige Vertragsbeziehungen und die Gestaltung von Residualrechten
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D83, D86, M12, M52
• Language: English