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How Unjust! An Experimental Investigation of Supervisors' Evaluation Errors and Agents' Incentives

Author

Listed:
  • Marchegiani, Lucia

    (University of Rome 3)

  • Reggiani, Tommaso G.

    (Cardiff University)

  • Rizzolli, Matteo

    (LUMSA University)

Abstract
In our simple model the supervisor: i) cannot observe the agent's effort; ii) aims at inducing the agent to exert high effort; but iii) can only offer rewards based on performance. Since performance is only stochastically related to effort, evaluation errors may occur. In particular, deserving agents that have exerted high effort may not be rewarded (Type I errors) and undeserving agents that have exerted low effort may be rewarded (Type II errors). We show that, although the model predicts both errors to be equally detrimental to performance, this prediction fails with a lab experiment. In fact, failing to reward deserving agents is significantly more detrimental than rewarding undeserving agents. We discuss our result in the light of some economic and managerial theories of behavior. Our result may have interesting implications for strategic human resource management and personnel economics and may also contribute to the debate about incentives and organizational performance.

Suggested Citation

  • Marchegiani, Lucia & Reggiani, Tommaso G. & Rizzolli, Matteo, 2011. "How Unjust! An Experimental Investigation of Supervisors' Evaluation Errors and Agents' Incentives," IZA Discussion Papers 6254, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6254
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    References listed on IDEAS

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    More about this item

    Keywords

    organizational justice; type I and type II errors; compensation; agency theory; real effort;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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