Teck Yong Tan
Department of Economics
420 West 118th Street
New York, NY 10027
NBER Working Papers and Publications
|April 2016||Optimal Contracting with Subjective Evaluation: The Effects of Timing, Malfeasance and Guile|
with W. Bentley MacLeod: w22156
We introduce a general Principal-Agent model with subjective evaluation and malfeasance characterized by two-sided asymmetric information on performance that allows for an arbitrary information structure. Two generic contract forms are studied. An authority contract has the Principal reveal his information before the Agent responds with her information. Under such a contract, the Agent's compensation varies only with the Principal's information, while her information is used to punish untruthful behavior by the Principal. Conversely, a sales contract has the Agent reveal her information first. In this case, the Agent's performance incentives are affected by the information revealed by both parties. Because the Agent's information affects her compensation, the information revelation constra...