Performance Evaluations and Efficient Sorting

47 Pages Posted: 28 Feb 2007

See all articles by Korok Ray

Korok Ray

University of Chicago GSB

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Abstract

Much of the production in firms takes place over time. This paper seeks to understand the value of interim performance information on long projects. In particular, the model explores the sorting effects of performance evaluations. Conducting an interim performance evaluation increases efficiency by providing the option to end projects with low early returns. The main result: it is efficient to allocate more resources towards the end of a project. This result holds under a variety of scenarios: when the worker has unknown ability, when the outside options vary with output, and even under an agency framework with a risk-averse agent.

Keywords: Performance measurement, sorting, performance evaluation

JEL Classification: M40, M46, G31, D82

Suggested Citation

Ray, Korok, Performance Evaluations and Efficient Sorting. Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=965949

Korok Ray (Contact Author)

University of Chicago GSB ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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