Abstract
We conduct a laboratory experiment with agents working on and principals benefiting from a real effort task in which the agents' effort/performance can only be evaluated subjectively. Principals give subjective performance feedback to agents and agents have an opportunity to sanction principals. We find that agents sanction whenever the feedback of principals is below their subjective self-evaluations even if the agents' payoff is independent of the principals' feedback. Based on our experimental analysis we propose a principal-agent model with subjective performance evaluations that accommodates this finding. We analyze the agents' (optimal) behavior, optimal contracts, and social welfare in this environment.
| Original language | English |
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| Publisher | Department of Economics, University of Copenhagen |
| Number of pages | 18 |
| Publication status | Published - 2010 |
Keywords
- Faculty of Social Sciences
- contracts
- subjective performance evaluations
- self-esteem
- ego-threats