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The Credibility of Performance Feedback in Tournaments
Author(s) -
Marinovic Iván
Publication year - 2015
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12086
Subject(s) - principal (computer security) , incentive , credibility , tournament , welfare , microeconomics , economics , business , actuarial science , computer science , computer security , mathematics , law , political science , combinatorics , market economy
This paper studies the effect of performance feedback on tournament outcomes, when a possibly dishonest principal may manipulate the agents' expectations to stimulate their effort. Under plausible circumstances, an increase in the principal's propensity to tell the truth (i.e., integrity) induces a mean preserving spread in the distribution of effort and leads to a decrease in expected profits and welfare. More generally, I identify conditions under which a lower integrity can improve the effectiveness of financial incentives in inducing the agents' effort, thus leading to higher expected profits for the principal.