A Biased Evaluation of Employees’ Performance Can Be Useful for Employers
In assessing an employee’s performance, employers often listen to his immediate supervisor or colleagues, and these opinions can be highly subjective. Sergey Stepanov, an economist from HSE University, has shown that biased evaluations can actually benefit employers. An article substantiating this finding was published in the Journal of Economic Behavior and Organization.
The model described in the article ‘Biased Performance Evaluation in A Model of Career Concerns: Incentives versus Ex-Post Optimality’ was developed within the ‘career concerns’ framework pioneered by Bengt Holmström. His paper represents the relationship between an employee (often called an agent by economists) and an employer, or principal (broadly speaking, this can be the market as a whole). This modelling considers three components of performance: talent, effort and random factors. An agent’s incentive to exert effort arises from the fact that better performance results in a higher evaluation of the agent’s talent by the market, which, in turn, can help to increase his future wage.
In the canonical model, an employer (or the market) observes the results of an agent’s work. Sergey Stepanov, Assistant Professor of HSE University’s Faculty of Economic Sciences, modified the model by adding an intermediate party – an evaluator. If the principal is busy or has many employees, it would be difficult for her to monitor each agent individually, and thus she will often rely on the evaluation of an agent by his supervisor or peers. For a variety of reasons, their assessments are likely to be biased, either in favour of the agent or against. With this in mind, the question the researcher sought to answer in this study was: ‘what should the best direction and degree of the bias be?’
Assistant Professor of HSE University’s Faculty of Economic Sciences
In classic career concerns models, the principal observes the performance of an agent directly. However, we know that this is often not the case, and principals receive such information through ‘evaluators’. However, the interests of these people may not coincide with those of the principal. And I thought: maybe it’s actually a good thing that they don’t? Objective evaluation is, of course, optimal from the point of view of making correct decisions about an agent (e.g., to promote him or not), but such an evaluation may create sub-optimal incentives to exert effort.
Agents who are very talented a priori will lose motivation if they are evaluated fairly, because they know they will most likely clear the performance bar even with a low effort. Similarly, agents who are initially believed to be below average will lose motivation because they are unlikely to succeed even with a high effort. Hence, an ideal evaluator should be stricter on employees who seem to be capable and talented, but more lenient towards those who are less capable. In addition, the greater the degree of career concerns of an agent, the less objective the optimal evaluator should be, while the performance of those whose abilities are initially very uncertain, for example, without a prior track record, should be judged most objectively.
Thus, the ‘unfair’ opinion of an evaluator may prove to be more useful in motivating an employee than an objective assessment.
The model may be useful, for example, for organizing internships. This proves that stronger interns with good CVs should indeed be given more demanding supervisors, whereas those for applicants with very brief CVs (which tell very little about their experience of skills) should be more balanced in their assessments.
The results of this research will be useful in evaluating the performance of government officials working on public projects or senior corporate managers, as well as in making internal promotion decisions.
Defenders in Football Underrated in the Transfer Market
Having analysed the statistics of players in the German Bundesliga, researchers from the HSE University Laboratory of Sports Studies found that the impact of defensive actions by players during a football match is much greater than contribution of such actions to their market value. The results of the study were published in the journal Applied Economics.
Graduate Admissions Webinars: PhD Programme in Economics
On February 1, 2023, HSE University will open admissions to its doctoral schools. The Doctoral School of Economics has held a webinar for prospective students, which attracted participants from various parts of the world. Materials and feedback from the webinar, as well as information on applications, are now available on the Faculty of Economic Sciences website.
HSE Faculty of Economic Sciences Co-Authors Intercontinental Monograph
The monograph Russian and Western Economic Thought has been published under the editorship of the HSE Faculty of Economic Sciences and the University of Hohenheim, Stuttgart (Germany). Written by a selection of respected experts, the monograph examines the interrelations and mutual influence of Russian and Western economic thinking. The book is edited by Prof. Vladimir Avtonomov, HSE Faculty of Economic Sciences, and Prof. Harald Hagemann, the University of Hohenheim.
Incompatible Alternatives: HSE Researchers on the Ambivalence of Power in the Twenty-first Century Economy
Ambivalence and a combination of contradictory principles are vividly manifested in the actions of government, its individual agents and institutions, as well as the everyday practices of economic subjects and citizens. The participants of the HSE Laboratory for Studies in Economic Sociology seminar discussed the book The Ambivalence of Power in the Twenty-First Century Economy: Cases from Russia and Beyond, recently published in the UK. Prepared by researchers from HSE University and foreign universities, the book focuses on the study of ambivalence in Russia and beyond.
The Informal Economy and Post-Soviet Transition
The informal economy is a global phenomenon found in both developed and developing countries. There remains no consensus among academics about how the informal sector impacts overall economic growth. Elena Kalmychkova and Alexander Lipanov of Lomonosov Moscow State University and HSE University examined the informal economic sectors of former Soviet republics and found that regardless of any potential negative impact, these informal economies eventually helped people adapt to a post-transition free market environment.
Russians Feel Disappointed with Their Income if Their Reference Group Average is Higher
Researcher Anastasia Dubnovitskaya of HSE University has studied the impact of social comparison on the level of Russians' pay satisfaction. The study used data from the Russia Longitudinal Monitoring Survey — HSE University (RLMS-HSE) from 2002 to 2018. It turned out that the main contribution to Russians' pay satisfaction is the difference between their actual pay and the average wages of the reference group — people with similar characteristics. The size of one's own wages was of secondary importance.
Anti-lectures, Cake and Soap Bubbles: HSE Faculty of Economic Sciences Celebrates Its 30th Anniversary
This year’s jubilee programme of Economfest turned out to be particularly eventful. Congratulations from university leaders, meetings with teachers, games, contests, quizzes, a job exchange with KPMG and Changellenge, as well as popcorn, cotton candy and cake were prepared for students, applicants and guests of HSE University.
Eurasian Barriers: Obstacles to International Economic Integration in the Post-Soviet Space
The creation of the Customs Union and the Eurasian Economic Union (EAEU) contributed to the development of mutual trade between their member countries. That process picked up pace significantly starting in 2019. Still, it is too early to say that the efforts by EAEU member states to achieve economic integration have been an unqualified success. This problem is the focus of a joint report that a group of experts from Russia (HSE), Kazakhstan, Belarus, Armenia and Kyrgyzstan presented at the XXIII Yasin International Academic Conference organised by HSE University in April.
Unlike Female CEOs in Europe, Women Executives in Russia Are As Likely to Pursue Innovation As Their Male Colleagues
Gender, alongside other characteristics, seems to have a different effect on CEO risk-taking practices in Russia and in Western Europe. Female executives in Russia are at least as likely as men — and in some areas even more likely — to engage in new R&D or to launch new products on the market.
‘Gaining Practical Knowledge and Learning to Do a Lot in a Short Time’—The Life of an HSE PhD Student
Milica Simonovic, from Belgrade, Serbia, is a doctoral student at the HSE University Faculty of Economic Sciences. She is currently working on her doctoral thesis on corporate governance and intellectual capital disclosure. We interviewed Milica to find out more about her thesis and her experience of the university’s application process for PhD students.