The Credibility of Performance Feedback in Tournaments

42 Pages Posted: 19 Sep 2014  

Ivan Marinovic

Stanford Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 17, 2014

Abstract

This paper studies the effect of performance feedback on tournament outcomes, when a possibly dishonest principal may manipulate the agents' expectations to stimulate their effort. Under plausible circumstances, an increase in the principal's propensity to tell the truth (i.e., integrity) induces a mean preserving spread in the distribution of effort and leads to a decrease in expected profits and welfare. More generally, I identify conditions under which a lower integrity can improve the effectiveness of financial incentives in inducing the agents' effort, thus leading to higher expected profits for the principal.

Keywords: Tournaments, Cheap-Talk, Contracts

JEL Classification: D82, D83, D84

Suggested Citation

Marinovic, Ivan, The Credibility of Performance Feedback in Tournaments (September 17, 2014). Rock Center for Corporate Governance at Stanford University Working Paper No. 193. Available at SSRN: https://ssrn.com/abstract=2497622

Ivan Marinovic (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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