Three essays on subjective performance evaluation

Abstract

This dissertation contains three chapters on the contracting problem under subjective performance evaluation. The first two chapters mainly deal with the money burning contract in a single agent model, complementing the existing literature in understanding the optimal contract form under subjective performance evaluation. The main finding is that the optimal contract is more often in the form of pay for performance or moderate wage compression, which is in contrast to the extreme wage compression result in the literature. The third chapter extends the work into a multi-agent model, investigating the implications of subjective performance evaluation and money burning in a team environment. The result shows that although favoritism exists, sabotage will arise and is not avoidable.