A Biased Evaluation of Employees' Performance Can Be Useful for Employers

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In assessing an employee's performance, employers often listen to his immediate supervisor or colleagues, and these opinions can be highly subjective. Sergey Stepanov, an economist from HSE University, has shown that biased evaluations can actually benefit employers. An article substantiating this finding was published in the Journal of Economic Behavior and Organization.
The model described in the article 'Biased Performance Evaluation in A Model of Career Concerns: Incentives versus Ex-Post Optimality' was developed within the 'career concerns' framework pioneered by Bengt Holmström. His paper represents the relationship between an employee (often called an agent by economists) and an employer, or principal (broadly speaking, this can be the market as a whole). This modelling considers three components of performance: talent,…
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