Optimal contracts based on subjective performance evaluations and reciprocity
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Optimal contracts based on subjective performance evaluations and reciprocity. / Sebald, Alexander Christopher; Walzl, Markus.
In: Journal of Economic Psychology, Vol. 47, 2015, p. 62–76.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Optimal contracts based on subjective performance evaluations and reciprocity
AU - Sebald, Alexander Christopher
AU - Walzl, Markus
N1 - JEL classification: D01, D02, D82, D86, J41
PY - 2015
Y1 - 2015
N2 - As demonstrated in a recent laboratory experiment (see Sebald & Walzl, 2014), individuals tend to sanction others who subjectively evaluate their performance whenever this assessment falls short of the individuals’ self-evaluation. Interestingly, this is the case even if the individuals’ earnings are unaffected by the subjective performance appraisal. Hence, performance feedback which falls short of agents’ self- evaluations can be interpreted as an unkind act that triggers a negatively reciprocal response not only if the assessment determines agents’ earnings but also when it lacks monetary consequences. We propose a principal-agent model formalizing that agents might engage into conflict in response to ego-threatening performance appraisals and show that these conflicts stabilize principal-agent relationships based on subjective performance evaluations. In particular, we identify conditions for a positive welfare effect of increasing costs of conflict and a negative welfare effect of more capable agents.
AB - As demonstrated in a recent laboratory experiment (see Sebald & Walzl, 2014), individuals tend to sanction others who subjectively evaluate their performance whenever this assessment falls short of the individuals’ self-evaluation. Interestingly, this is the case even if the individuals’ earnings are unaffected by the subjective performance appraisal. Hence, performance feedback which falls short of agents’ self- evaluations can be interpreted as an unkind act that triggers a negatively reciprocal response not only if the assessment determines agents’ earnings but also when it lacks monetary consequences. We propose a principal-agent model formalizing that agents might engage into conflict in response to ego-threatening performance appraisals and show that these conflicts stabilize principal-agent relationships based on subjective performance evaluations. In particular, we identify conditions for a positive welfare effect of increasing costs of conflict and a negative welfare effect of more capable agents.
KW - Faculty of Social Sciences
KW - Contracts
KW - Subjective evaluations
KW - Self-esteem
KW - Ego-threats
KW - Reciprocity
U2 - 10.1016/j.joep.2015.01.004
DO - 10.1016/j.joep.2015.01.004
M3 - Journal article
VL - 47
SP - 62
EP - 76
JO - Journal of Economic Psychology
JF - Journal of Economic Psychology
SN - 0167-4870
ER -
ID: 132046136