Motivational Ratings

103 Pages Posted: 13 Apr 2016 Last revised: 21 May 2016

See all articles by Johannes Horner

Johannes Horner

Yale University - Cowles Foundation

Nicolas S. Lambert

Stanford Graduate School of Business - Knight Management Center

Date Written: April 9, 2016

Abstract

Rating systems not only provide information to users but also motivate the rated agent. This paper solves for the optimal (effort-maximizing) rating system within the standard career concerns framework. It is a mixture two-state rating system. That is, it is the sum of two Markov processes, with one that reflects the belief of the rater and the other the preferences of the rated agent. The rating, however, is not a Markov process. Our analysis shows how the rating combines information of different types and vintages. In particular, an increase in effort may affect some (but not all) future ratings adversely.

Keywords: Career Concerns, Mechanism Design, Ratings

JEL Classification: C72, C73

Suggested Citation

Horner, Johannes and Lambert, Nicolas S., Motivational Ratings (April 9, 2016). Cowles Foundation Discussion Paper No. 2035, Available at SSRN: https://ssrn.com/abstract=2761405 or http://dx.doi.org/10.2139/ssrn.2761405

Johannes Horner (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Nicolas S. Lambert

Stanford Graduate School of Business - Knight Management Center ( email )

655 Knight Way
Stanford, CA 94305-7298
United States

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