Subjective performance evaluation and social preferences: An empirical investigation of fairness and trust reciprocity

Using an experiment, we investigate under which circumstances superiors are willing to incur a personal cost to obtain ex post non-contractible information about the individual effort levels of subordinates in a team production setting. In contrast to the standard self-interest model, but consistent with models that incorporate preferences for fairness and trust reciprocity, we show that managers are willing to pay for information that allows them to allocate rewards to their subordinates in proportion to their individual contributions to a joint production process. Moreover, our findings indicate that superiors' willingness to pay increases as the noisiness of the measure as an indicator of individual performance increases and as aggregate performance itself increases. The study contributes to the existing literature on subjective performance evaluation by identifying the conditions under which superiors are willing to seek out costly information on individual performance.