Subjective Performance Evaluation and Inequality Aversion

32 Pages Posted: 3 Nov 2008

See all articles by Christian Grund

Christian Grund

RWTH Aachen University - School of Economics and Business Administration; IZA Institute of Labor Economics

Judith Przemeck

affiliation not provided to SSRN

Abstract

Many firms use subjective performance appraisal systems due to lack of objective performance measures. In these cases, supervisors usually have to rate the performance of their subordinates. Using such systems, it is a well established fact that many supervisors tend to assess the employees too good (leniency bias) and that the appraisals hardly vary across employees of a certain supervisor (centrality bias). We explain these two biases in a model with a supervisor, who has preferences for the utility of her inequality averse subordinates, and discuss determinants of the size of the biases. Extensions of the basic model include the role of supervisor's favoritism of one particular agent and the endogenous effort choice of agents. Whether inequality averse agents exert higher efforts then purely self-oriented ones, depends on the size of effort costs and inequality aversion.

Keywords: appraisals, inequality aversion, performance evaluation, centrality bias, leniency bias

JEL Classification: M5, D63

Suggested Citation

Grund, Christian and Przemeck, Judith, Subjective Performance Evaluation and Inequality Aversion. IZA Discussion Paper No. 3382. Available at SSRN: https://ssrn.com/abstract=1294534 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Christian Grund (Contact Author)

RWTH Aachen University - School of Economics and Business Administration ( email )

Aachen
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Judith Przemeck

affiliation not provided to SSRN

No Address Available

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