We consider the incentive characteristics of optimal linear contracts based on relative performance evaluation (RPE) for managers under moral hazard in imperfectly competitive product markets. Each contract influences the quantity choices of all competing agents causing contract externalities...

In tests of the relative performance evaluation (RPE) hypothesis, researchers rarely, if ever, aggregate peer performance in the same way as a firm’s board of directors. Framed as a standard errors-in-variables problem, a commonly-held view is that such aggregation errors induce an attenuation...