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Loss averse agents and lenient supervisors in performance appraisal

Marchegiani, Lucia, Reggiani, Tommaso and Rizzolli, Matteo 2016. Loss averse agents and lenient supervisors in performance appraisal. Journal of Economic Behavior and Organization 131 (A) , pp. 183-197. 10.1016/j.jebo.2016.07.022

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Abstract

A consistent empirical literature shows that in many organizations supervisors systematically overrate their employees’ performance. Such leniency bias is at odds with the standard principal-agent model and has been explained with causes that range from social interactions to fairness concerns and to collusive behavior between the supervisor and the agent. We show that the principal-agent model, extended to consider loss-aversion and reference-dependent preferences, predicts that the leniency bias is comparatively less detrimental to effort provision than the severity bias. We test this prediction with a laboratory experiment where we demonstrate that failing to reward deserving agents is significantly more detrimental than rewarding undeserving agents. This offers a novel explanation as to why supervisors tend to be lenient in their appraisals.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
Publisher: Elsevier
ISSN: 0167-2681
Related URLs:
Date of Acceptance: 27 July 2016
Last Modified: 12 Nov 2020 14:30
URI: http://orca.cf.ac.uk/id/eprint/129117

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