Munich Personal RePEc Archive

Dynamic Evaluation Design

Smolin, Alex (2017): Dynamic Evaluation Design.

[img]
Preview
PDF
MPRA_paper_84133.pdf

Download (582kB) | Preview

Abstract

A principal owns a firm, hires an agent of uncertain productivity, and designs a dynamic policy for evaluating his performance. The agent observes ongoing evaluations and decides when to quit. While not quitting, the agent is paid a wage proportional to his perceived productivity; the principal claims the residual performance. After quitting, the agent secures a fixed safe payoff. I show that equilibrium evaluation policies are Pareto efficient and leave no rents to the agent. In a minimally informative equilibrium, for a broad class of performance technologies, the agent’s wage deterministically grows with tenure.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.