The Economics of Performance Appraisals

Mardi | 2009-01-27

Marc-Arthur DIAYE – N. GREENAN – William TELKES

Performance appraisals have become a widespread practice in OECDmember countries. However, whereas the problem of constructing an optimalcontract with subjective evaluation receives a lot of attention, firmlevelperformance appraisals are strikingly left outside of economic theory.The purpose of this paper is threefold: first, to theoretically define whatperformance appraisals are; second, to analyze the effects of incentivecontracts on effort and wage using performance appraisals; and third, toquantify the selection effects driven by the implementation of performanceappraisals.