Aggregating Performance Measures in Multi-Task Agencies

It has been argued in the multi-task agency literature that effort distortion can be mitigated by applying several performance measures in incentive contracts. This paper analyzes the efficient aggregation of multiple performance measures aimed at motivating non-distorted effort. It demonstrates that non-distorted effort can be induced by combining a sufficient quantity of informative performance measures. However, this is only optimal if the required aggregation concurrently maximizes the precision of the agent`s performance evaluation. This paper further illustrates how the optimal performance evaluation is affected by the ability of individual agents to perform relevant tasks.