Dynamic Evaluation Design

38 Pages Posted: 12 Oct 2017 Last revised: 2 Nov 2020

See all articles by Alex Smolin

Alex Smolin

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: October 2020

Abstract

A principal owns a firm, hires an agent of uncertain productivity, and designs a dynamic policy for evaluating his performance. The agent observes ongoing evaluations and decides when to quit. When not quitting, the agent is paid a wage that is linear in his perceived productivity; the principal claims the residual performance. After quitting, the players secure fixed outside options. I show that equilibrium evaluation policies are Pareto efficient. In a minimally informative equilibrium, for a broad class of performance technologies, the agent's wage deterministically grows with tenure. My analysis suggests that endogenous performance evaluation plays an important role in shaping careers in organizations.

Keywords: evaluation, information design, career concerns, bandit experimentation, downward wage rigidity, up-or-out, internal labor markets

JEL Classification: C72, D82, D83, M52

Suggested Citation

Smolin, Alex, Dynamic Evaluation Design (October 2020). Available at SSRN: https://ssrn.com/abstract=3051703 or http://dx.doi.org/10.2139/ssrn.3051703

Alex Smolin (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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