Noisy and Subjective Performance Measure in Promotion Tournaments
Seoul Journal of Economics, Vol. 25, No. 2, pp. 207-221, 2012
16 Pages Posted: 14 Jun 2012
Date Written: May 30, 2012
This paper considers both incentive and sorting effects of a promotion tournament, and analyzes the optimal degree of uncertainty in the agents' performance measure. In a subjective promotion tournament where the winner is determined by the principal's belief about the agents' ability, this paper shows that a noisy performance measure can have a positive incentive effect and a negative sorting effect. Therefore, it can be optimal for the principal to intentionally choose a noisy performance measure.
Keywords: noisy performance measure, subjective tournament, sorting
JEL Classification: D82, D86, M52
Suggested Citation: Suggested Citation