Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/173424
Authors: 
Letina, Igor
Liu, Shuo
Netzer, Nick
Year of Publication: 
2017
Series/Report no.: 
Working Paper 266
Abstract: 
We study optimal incentive contracts with multiple agents when performance evaluation is delegated to a reviewer. The reviewer may be biased in favor of the agents, but the degree of the bias is unknown to the principal. We show that a contest, which is a contract in which the principal determines a set of prizes to be allocated to the agents, is optimal. By using a contest, the principal can commit to sustaining incentives despite the reviewer's potential leniency bias. The optimal effort profile can be uniquely implemented by an all-pay auction with a cap, and it can also be implemented by a nested Tullock contest. Our analysis has implications for applications as diverse as the design of worker compensation, the awarding of research grants, and the allocation of foreign aid.
Subjects: 
Performance evaluation
delegation
optimality of contests
JEL: 
D02
D82
M52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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