Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86985
Authors: 
Sol, Joeri
Year of Publication: 
2010
Series/Report no.: 
Tinbergen Institute Discussion Paper 10-055/1
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.
Subjects: 
peer evaluation
peer appraisal
incentive contracts
co-worker relations
likeability bias
JEL: 
D86
J33
M50
Document Type: 
Working Paper

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