Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2010-05-28
Number: 10-055/1
Author-Name: Joeri Sol
Author-Workplace-Name: Erasmus University Rotterdam
Title: Peer Evaluation: Incentives and Co-Worker Relations
Abstract: In many workplaces co-workers have the best information about each other's effort. Managers may attempt to exploit this information through peer evaluation. I study peer evaluation in a pure moral hazard model of production by two limitedly liable agents. Agents receive a signal about their colleague's effort level, and are asked to report it to the principal. The principal may give an individual bonus for the receipt of a positive evaluation by a colleague, which stimulates effort as long as signals are revealed truthfully. A cost of lying ascertains that there can be truthful revelation. I show that interpersonal relations between colleagues constrain the bonus for receiving a positive evaluation in order to keep evaluations truthful. Still, the principal will always include such a bonus in the optimal contract, and possibly complement it with a team bonus. Co-worker relations have non-monotic effects on profits in the optimal contract.
Classification-JEL: D86, J33, M50
Keywords: peer evaluation, peer appraisal, incentive contracts, co-worker relations, likeability bias
File-Url: https://papers.tinbergen.nl/10055.pdf
File-Format: application/pdf
File-Size: 607284 bytes
Handle: RePEc:tin:wpaper:20100055