Affordable Access

Delegating performance evaluation

Authors
  • Letina, Igor
  • Liu, Shuo
  • Netzer, Nick
Publication Date
Mar 01, 2018
Source
Zurich Open Repository and Archive
Keywords
Language
English
License
Unknown
External links

Abstract

We study optimal incentive contracts with multiple agents when performance evaluation is delegated to a reviewer. The reviewer may be biased in favor of the agents, but the degree of bias is unknown to the principal. We show that a contest, which is a contract in which the principal determines a set of prizes to be allocated to the agents, is optimal. By using a contest, the principal can commit to sustaining incentives despite the reviewer’s potential leniency bias. The optimal effort profile can be uniquely implemented by an all-pay auction with a cap. Our analysis has implications for applications as diverse as the design of worker compensation, the awarding of research grants, and the allocation of foreign aid.

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