CIRJE-F-727 "Role of Relative and Absolute Performance Evaluations in Intergroup Competition"
Author Name Matsushima, Hitoshi
Date March 2010
Full Paper PDF file
Remarks @@Accepted in Japanese Economic Review.

We investigate the moral hazard problem in which a principal delegates multiple tasks to multiple workers. The principal imperfectly monitors their action choices by observing the public signals that are correlated with each other through a macro shock. He divides the workers into two groups and makes them compete with each other. We show that when the number of tasks is sufficiently large, relative performance evaluation between the groups accompanied with absolute performance evaluation results in eliminating unwanted equilibria. In this case, any approximate Nash equilibrium nearly induces the first-best allocation.