Abstract

http://ssrn.com/abstract=1659091
 
 

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Favoritism in Organizations


Canice Prendergast


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Robert H. Topel


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

August 1993

NBER Working Paper No. w4427

Abstract:     
Performance evaluations for workers are typically subjective impressions held by supervisors rather than easily quantifiable measures of output. We argue that perhaps the most important aspect this is that it gives supervisors the opportunity to exercise their personal preference towards their employees in a way that is detrimental for performance. both for incentive reasons and through misallocation of workers to jobs. We illustrate that firms will respond to this problem in a number of ways. First, they will make compensation less sensitive to performance, even when workers are risk neutral. Furthermore, firms will typically use bureaucratic procedures for allocating rewards, even though these are known to be ex post inefficient. In addition, firms may tie wages to jobs as a means of credibly rewarding the best performers. These organizational changes are used because directly monitoring supervisors' decisions is fraught with problems, among them the creation of 'yes men,' so that the indirect mechanisms described above are likely to be optimal responses to favoritism.

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Date posted: August 16, 2010  

Suggested Citation

Prendergast, Canice and Topel, Robert H., Favoritism in Organizations (August 1993). NBER Working Paper No. w4427. Available at SSRN: http://ssrn.com/abstract=1659091

Contact Information

Canice Prendergast (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7309 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Robert H. Topel
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7524 (Phone)
773-702-2699 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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