IDEAS home Printed from https://ideas.repec.org/a/spr/etbull/v11y2023i2d10.1007_s40505-023-00256-4.html
   My bibliography  Save this article

Relative performance evaluation in organizations with information networks

Author

Listed:
  • Xiangyu Shi

    (Yale University
    Chinese University of Hong Kong)

Abstract

I build on Bandiera et al. (Quarter. J. Econ. 120(3):917–962, 2005) and propose a novel mechanism whereby the structure of social network within an organization matters for its efficiency. The ability of each agent is private information, but adjacent agents in the network can observe each other’s ability. Under relative performance evaluation, the effect of adding links among agents on the effort level is ambiguous, and is determined by the second- (complementarity) and third-order (“risk” attitude) cross-partial derivatives of the compensation function. If the second- and third-order cross-partial derivatives of the compensation function satisfy certain conditions, any network structure can maximize the output given that compensation scheme.

Suggested Citation

  • Xiangyu Shi, 2023. "Relative performance evaluation in organizations with information networks," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(2), pages 243-254, October.
    • Handle: RePEc:spr:etbull:v:11:y:2023:i:2:d:10.1007_s40505-023-00256-4
    DOI: 10.1007/s40505-023-00256-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s40505-023-00256-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s40505-023-00256-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 917-962.
    2. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(6), pages 1999-2043, December.
    3. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    4. Shi, Xiangyu & Xi, Tianyang, 2018. "Race to safety: Political competition, neighborhood effects, and coal mine deaths in China," Journal of Development Economics, Elsevier, vol. 131(C), pages 79-95.
    5. McAfee, R Preston & McMillan, John, 1991. "Optimal Contracts for Teams," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 561-577, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fosco, C. & Mengel, F., 2008. "Incentives and informal networks," Research Memorandum 022, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    2. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.
    3. Philip Babcock & Kelly Bedard & Gary Charness & John Hartman & Heather Royer, 2015. "Letting Down The Team? Social Effects Of Team Incentives," Journal of the European Economic Association, European Economic Association, vol. 13(5), pages 841-870, October.
    4. Hyun Seok (Huck) Lee & Saravanan Kesavan & Camelia Kuhnen, 2022. "When do group incentives for retail store managers work?," Production and Operations Management, Production and Operations Management Society, vol. 31(8), pages 3077-3095, August.
    5. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.
    6. Kirstein, Roland & Kirstein, Annette, 2004. "Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies," CSLE Discussion Paper Series 2004-09, Saarland University, CSLE - Center for the Study of Law and Economics.
    7. Breton, Michele & St-Amour, Pascal & Vencatachellum, Desire, 2003. "Dynamic production teams with strategic behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 27(5), pages 875-905, March.
    8. Waisman, Maya, 2013. "Product market competition and the cost of bank loans: Evidence from state antitakeover laws," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4721-4737.
    9. Andrea Blasco & Olivia S. Jung & Karim R. Lakhani & Michael Menietti, 2016. "Motivating Effort In Contributing to Public Goods Inside Organizations: Field Experimental Evidence," NBER Working Papers 22189, National Bureau of Economic Research, Inc.
    10. Christian Keuschnigg & Evelyn Ribi, 2013. "Profit taxes and financing constraints," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(5), pages 808-826, October.
    11. Karuna, Christo, 2007. "Industry product market competition and managerial incentives," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 275-297, July.
    12. Liu, Lisa Shifei & Stark, Andrew W., 2009. "Relative performance evaluation in board cash compensation: UK empirical evidence," The British Accounting Review, Elsevier, vol. 41(1), pages 21-30.
    13. Karol Flores-Szwagrzak & Rafael Treibich, 2020. "Teamwork and Individual Productivity," Management Science, INFORMS, vol. 66(6), pages 2523-2544, June.
    14. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    15. Breton, Michèle & St-Amour, Pascal & Vencatachellum, Désiré, 1998. "Birds of a Feather: Teams as a Screening Mechanism," Cahiers de recherche 9808, Université Laval - Département d'économique.
    16. Franco, April Mitchell & Mitchell, Matthew & Vereshchagina, Galina, 2011. "Incentives and the structure of teams," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2307-2332.
    17. Bose, Arup & Pal, Debashis & Sappington, David E.M., 2010. "Asymmetric treatment of identical agents in teams," European Economic Review, Elsevier, vol. 54(7), pages 947-961, October.
    18. Spraggon, John, 2002. "Exogenous targeting instruments as a solution to group moral hazards," Journal of Public Economics, Elsevier, vol. 84(3), pages 427-456, June.
    19. Alexander Guembel, 2001. "Emerging Markets and Entry by Actively Managed Funds," Economics Series Working Papers 2001-FE-12, University of Oxford, Department of Economics.
    20. Jed Devaro & Fidan Ana Kurtulus, 2011. "What types of organizations benefit from teams, and how do they benefit?," UMASS Amherst Economics Working Papers 2011-16, University of Massachusetts Amherst, Department of Economics.

    More about this item

    Keywords

    Relative performance evaluation; Principal-multiagent model; Information; Network;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:etbull:v:11:y:2023:i:2:d:10.1007_s40505-023-00256-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.