To address agents' moral hazard over effort, incentive contracts impose risk on the agents. As performance measures become noisier, the conventional agency analysis predicts that principals will reduce the incentive weights assigned to such measures. However, prior empirical results (Prendergast...

Using a setting in which an employer seeks information about talent in order to achieve a proper match between talent levels and tasks, we provide a comparative analysis of two performance evaluation systems widely used in practice ― an absolute performance evaluation system (APE) and a...

We examine a principal-agent setting in which the principal uses a performance measurement system for multiple purposes to provide incentives and for retention decisions. The principal chooses the nature and extent of bias in the system, which determines whether the performance report is...

Screening talent to appropriately assign tasks among agents is an important organizational decision. In this paper, we compare the efficacies of absolute and relative performance evaluation systems in identifying agent talent when information asymmetry is present. We identify conditions under...

Limited information about the demand for some of the resources needed to produce goods and services (e.g., incomplete and imperfect bills of materials) forces firms to use heuristics when planning resource capacity. We examine the performance of five heuristics: two drawn from practice, two that...