Noisy and Subjective Performance Measure in Promotion Tournaments
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This paper considers both incentive and sorting effects of a promotion tournament, and analyzes the optimal degree of uncertainty in the agents' performance measure. In a subjective promotion tournament where the winner is determined by the principal's belief about the agents' ability, this paper shows that a noisy performance measure can have a positive incentive effect and a negative sorting effect. Therefore, it can be optimal for the principal to intentionally choose a noisy performance measure.
Abstract
This paper considers both incentive and sorting effects of a promotion tournament, and analyzes the optimal degree of uncertainty in the agents' performance measure. In a subjective promotion tournament where the winner is determined by the principal's belief about the agents' ability, this paper shows that a noisy performance measure can have a positive incentive effect and a negative sorting effect. Therefore, it can be optimal for the principal to intentionally choose a noisy performance measure.
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