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Relative Performance Evaluation and Limited Liability

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  • Bhaskar, V

Abstract

We analyze the role of relative performance evaluation when a principal has several agents, who face correlated shocks. If limited liability constraints are binding, relative performance evaluation may be of no value if the principal is restricted to symmetric contracts. However, with asymmetric contracts, where agents are induced to choose different effort levels, relative performance measures can be used in order to reduce informational rents. Relative performance evaluation is a way of reducing the rents of the high effort agent, who will in general be worse off than the low effort agent.

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  • Bhaskar, V, 2002. "Relative Performance Evaluation and Limited Liability," Economics Discussion Papers 8852, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:8852
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    Cited by:

    1. Dam Kaniska & Perez-Castrillo David, 2006. "The Principal-Agent Matching Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-34, August.
    2. Oriana Bandiera (STICERD & LSE, 2004. "Relative and Absolute Incentives: Evidence on Worker Productivity," Econometric Society 2004 North American Summer Meetings 277, Econometric Society.
    3. List, John A. & Rasul, Imran, 2011. "Field Experiments in Labor Economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 2, pages 103-228, Elsevier.
    4. Kaniska Dam & David Pérez-Castrillo, 2003. "Equilibrium Limited Liability Contracts in a Landlord-Tenant Market," Working Papers 99, Barcelona School of Economics.

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