Universität zu Köln

Bester, Helmut and Muenster, Johannes (2016). Subjective evaluation versus public information. Econ. Theory, 61 (4). S. 723 - 754. NEW YORK: SPRINGER. ISSN 1432-0479

Full text not available from this repository.

Abstract

This paper studies a principal-agent relation in which the principal's private information about the agent's effort choice is more accurate than a noisy public performance measure. For some contingencies the optimal contract has to specify ex post inefficiencies in the form of inefficient termination (firing the agent) or wasteful activities that are formally equivalent to third-party payments (money burning). Under the optimal contract, the use of these instruments depends not only on the precision of public information but also on job characteristics. Money burning is used at most in addition to firing and only if the loss from termination is small. The agent's wage may depend only on the principal's report and not on the public signal. Nonetheless, public information is valuable as it facilitates truthful subjective evaluation by the principal.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Bester, Helmut UNSPECIFIED UNSPECIFIED UNSPECIFIED Muenster, Johannes UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-280054
DOI:	10.1007/s00199-016-0953-8
Journal or Publication Title:	Econ. Theory
Volume:	61
Number:	4
Page Range:	S. 723 - 754
Date:	2016
Publisher:	SPRINGER
Place of Publication:	NEW YORK
ISSN:	1432-0479
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language INCENTIVE CONTRACTS; MORAL HAZARD; PERFORMANCE; PRINCIPAL; INDICATORS; IMPLICIT Multiple languages Economics Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/28005