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Dynamic performance evaluation with deadlines: The role of commitment

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  • Chia‐Hui Chen
  • Junichiro Ishida

Abstract

We consider an environment in which a principal hires an agent and evaluates his productivity over time. The problem is embedded in a continuous‐time model with both hidden action and hidden information, where the principal must induce the agent to exert effort to facilitate her learning process. The value of committing to a deadline is examined in this environment, and factors which make the deadline more profitable are identified. Our framework generates a unique recursive equilibrium structure under no commitment which can be exploited to obtain a full characterization of the unique pure‐strategy equilibrium. The analysis allows us to evaluate the exact value of commitment for any given set of parameters and provides insight into when it is beneficial to commit to an evaluation deadline at the outset of a relationship.

Suggested Citation

  • Chia‐Hui Chen & Junichiro Ishida, 2018. "Dynamic performance evaluation with deadlines: The role of commitment," Journal of Industrial Economics, Wiley Blackwell, vol. 66(2), pages 377-422, June.
    • Handle: RePEc:bla:jindec:v:66:y:2018:i:2:p:377-422
    DOI: 10.1111/joie.12174
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    1. Chen, Chia-Hui & Ishida, Junichiro, 2018. "Hierarchical experimentation," Journal of Economic Theory, Elsevier, vol. 177(C), pages 365-404.
    2. Chia-Hui Chen & Junichiro Ishida, 2017. "Rewarding Mediocrity? Optimal Regulation of R&D Markets with Reputation Concerns," ISER Discussion Paper 0994, Institute of Social and Economic Research, Osaka University.

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