Communicating Subjective Evaluations

40 Pages Posted: 3 Jul 2014

See all articles by Matthias Lang

Matthias Lang

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: April 2017

Abstract

Consider managers evaluating their employees’ performances. Should managers justify their subjective evaluations? Suppose a manager’s evaluation is private information. Justifying her evaluation is costly but limits the principal’s scope for distorting her evaluation of the employee. I show that the manager justifies her evaluation if and only if the employee’s performance was poor. The justification assures the employee that the manager has not distorted the evaluation downwards. For good performance, however, the manager pays a constant high wage without justification. The empirical literature demonstrates that subjective evaluations are lenient and discriminate poorly between good performance levels. This pattern was attributed to biased managers. I show that these effects occur in optimal contracts without any biased behavior.

Keywords: communication, justification, subjective evaluation, message games, centrality, leniency, disclosure

JEL Classification: D820, D860, J410, M520

Suggested Citation

Lang, Matthias, Communicating Subjective Evaluations (April 2017). CESifo Working Paper Series No. 4830. Available at SSRN: https://ssrn.com/abstract=2461667

Matthias Lang (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
Bonn
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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