Thiele, Veikko (2007): Subjective Performance Evaluation and Collusion.
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This paper considers a principal-agent relationship and explores the incentive provision when the agent's performance cannot be verified. It contrasts two alternatives for the principal to provide incentives: (i) to subjectively evaluate the agent's performance; and (ii), to delegate this task to a supervisor. Supervision induces contractible information about the agent's performance, but could result in vertical collusion. This paper demonstrates that collusion-proofness can require an inefficiently high payment to the supervisor, and too low powered incentives for the agent. The eventuality of collusion is further found to potentially (i), improve the profitability; and (ii), facilitate the achievement of relational contracts based upon subjective performance evaluations.
|Item Type:||MPRA Paper|
|Institution:||University of British Columbia - Sauder School of Business|
|Original Title:||Subjective Performance Evaluation and Collusion|
|Keywords:||Subjective performance measurement; collusion; relational contracts; limited liability; incentives|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design
|Depositing User:||Veikko Thiele|
|Date Deposited:||01. Apr 2007|
|Last Modified:||24. Feb 2013 23:33|
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