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Budde, Jörg (September 2013): Good news and bad news in subjective performance evaluation. SFB/TR 15 Discussion Paper No. 444
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Abstract

Earlier studies show that contracts under subjective performance evaluation are dichotomous and punish only worst performance. I show that with limited liability payments need not be binary. More importantly, if the agent earns a rent from limited liability, the optimal contract distinguishes only signals of good news and bad news of the agent’s action.