Parallelism in Information Production: Moral Hazard and Relative Performance Evaluations

1993 ◽  
Vol 39 (4) ◽  
pp. 448-457 ◽  
Author(s):  
Peter Bogetoft
Keyword(s):  
Moral Hazard ◽  
Relative Performance ◽  
Performance Evaluations ◽  
Information Production

Compensation contracts for multiple agents with helping effort under bilateral moral hazard

2021 ◽  
Vol 40 (1) ◽  
pp. 271-293
Author(s):  
Xiulan Wang ◽  
Xiaoli Wu
Keyword(s):  
Performance Evaluation ◽  
Moral Hazard ◽  
Optimal Strategy ◽  
Stackelberg Game ◽  
Contract Design ◽  
Relative Performance ◽  
Relative Performance Evaluation ◽  
Multiple Agents ◽  
Compensation Contracts ◽  
Personal Performance

This paper aims to investigate the compensation contract design problem consisting of a risk neutral firm and two risk averse workers with and without helping effort in the presence of bilateral moral hazard by Stackelberg game in the framework of principal-agent theory. Three classes of contract models are established in three modes, which reflect whether helping effort takes place between both workers and whether personal performance evaluation contract or relative performance evaluation contract is applied by the firm. By solving models, optimal efforts of the firm, optimal individual and workgroup incentive coefficients, optimal personal effort and helping effort, and the firm’s expected profit are deduced in different modes. In addition, a numerical experiment is investigated by focusing on the impacts of effort cost coefficients of the firm and the worker, and bilateral moral hazard on optimal compensation contracts and profit of the firm in three modes, which provide some valuable management insights about optimal strategy for the firm. The main findings show that the relative performance evaluation contract works better than the personal performance evaluation contract when the two workers is cooperative, which means that helping effort takes place between the two workers. Furthermore, a higher marginal contribution can motive the worker to make more helping effort for her partner, thus achieving win-win outcome based on the relationship of cooperation. For the firm, the optimal strategy is to design the relative performance evaluation contract for both workers and motivate them to make cooperative relationship by exerting helping effort under bilateral moral hazard. Moreover, bilateral moral hazard decreases the motivations of the workers but increases the firm’s profit. This proposed work contributes to the investigation of compensation contract design by combining three critical factors, that is, multiple agents, bilateral moral hazard, and helping effort. The findings provide some theoretical guidance on how to set up optimal mechanism between the firm and multiple agents in the presence of bilateral moral hazard and how to reduce the adverse influence of bilateral moral hazard on participants’ profits.

scholarly journals Fees, Reputation, and Information Production in the Credit Rating Industry

2021 ◽  
Vol 13 (2) ◽  
pp. 1-34
Author(s):  
Jacopo Bizzotto ◽  
Adrien Vigier
Keyword(s):  
Social Welfare ◽  
Moral Hazard ◽  
Credit Rating ◽  
Information Production ◽  
Equilibrium Outcome ◽  
Costly Information ◽  
Fee Structure ◽  
Dynamic Incentives ◽  
Contingent Fees ◽  
The Way

We compare a credit rating agency’s incentives to acquire costly information when it is only paid for giving favorable ratings to the corresponding incentives when the agency is paid up-front, i.e., irrespective of the ratings assigned. We show that, in the presence of moral hazard, contingent fees provide stronger dynamic incentives to acquire information than up-front fees and may induce higher social welfare. When the fee structure is chosen by the agency, contingent fees arise as an equilibrium outcome, in line with the way the market for credit rating actually works. (JEL D21, D82, D83, G24)

Further Evidence on the Negativity Bias in Performance Evaluation: When Does the Evaluator's Perspective Matter?

2017 ◽  
Vol 30 (1) ◽  
pp. 169-184 ◽  
Author(s):  
Steven E. Kaplan ◽  
Michael J. Petersen ◽  
Janet A. Samuels
Keyword(s):  
Performance Measures ◽  
Performance Outcomes ◽  
Relative Performance ◽  
Performance Evaluations ◽  
Negativity Bias ◽  
Negative Outcomes ◽  
Dysfunctional Behavior ◽  
Equivalent Number ◽  
New Evidence

ABSTRACT In a setting involving a firm using multiple performance measures, we experimentally examine the effect of an evaluator's perspective on the relative performance evaluations of two managers. The performance outcomes of the two managers are linearly equivalent, but one manager's performance includes an equivalent number of above target and below target outcomes (e.g., the mixed manager), while the other manager's performance only includes above target outcomes (e.g., the positive manager). In this setting, we provide new evidence on the negativity bias and whether the bias is moderated based on evaluators' role and the importance of the measures with negative outcomes. Participants are assigned to the role of the supervisor, the mixed manager, or the positive manager and asked to evaluate each manager's performance. We predict and find that participants in all three roles exhibit the negativity bias. In addition, we predict that the strength of the negativity bias exhibited by mixed or positive managers relative to the supervisor's negativity bias depends on whether the measures with negative outcomes are more or less important. As expected, we find that when negative outcomes involve less important measures, the relative performance evaluations of mixed (positive) managers are similar to (differ from) those of supervisors. In contrast, when negative outcomes involve more important measures, the relative performance evaluations of positive (mixed) managers are similar to (differ from) supervisors. Understanding whether and when managers' relative performance evaluations differ from their supervisors is important, in part, because conflicts and potentially dysfunctional behavior are likely to arise when their relative performance evaluations differ.

Relationships Between Subjective Ratings and Objective Measures of Performance in Speechreading Sentences

1997 ◽  
Vol 40 (4) ◽  
pp. 900-911 ◽  
Author(s):  
Marilyn E. Demorest ◽  
Lynne E. Bernstein
Keyword(s):  
Hearing Impairment ◽  
Performance Evaluations ◽  
Objective Measures ◽  
Large Individual ◽  
Subjective Ratings ◽  
Objective Performance ◽  
Phonetic Distance ◽  
Stimulus Length ◽  
Measures Of Performance ◽  
Confidence Scale

Ninety-six participants with normal hearing and 63 with severe-to-profound hearing impairment viewed 100 CID Sentences (Davis & Silverman, 1970) and 100 B-E Sentences (Bernstein & Eberhardt, 1986b). Objective measures included words correct, phonemes correct, and visual-phonetic distance between the stimulus and response. Subjective ratings were made on a 7-point confidence scale. Magnitude of validity coefficients ranged from .34 to .76 across materials, measures, and groups. Participants with hearing impairment had higher levels of objective performance, higher subjective ratings, and higher validity coefficients, although there were large individual differences. Regression analyses revealed that subjective ratings are predictable from stimulus length, response length, and objective performance. The ability of speechreaders to make valid performance evaluations was interpreted in terms of contemporary word recognition models.

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