Francisco de Asis Martinez-Jerez

The Performance Effect of Feedback Frequency and Detail: Evidence from a Field Experiment in Customer Satisfaction

This paper presents the results from a field experiment that examines the effects of non-financial performance feedback on the behavior of professionals working for an insurance repair company. We vary the frequency (weekly and monthly) and the level of detail of the feedback that the 800 professionals receive. Contrary to what we would expect if these professionals conformed to the model of the Bayesian decision maker, more (and more frequent) information does not always help improve performance. In fact, we find that professionals achieve the best outcomes when they receive detailed but infrequent (monthly) feedback. The treatment groups with frequent feedback, regardless of how detailed it is, perform no better than the control group (with monthly and aggregate information). The results are consistent with the information in the latest feedback report being most salient, and professionals in the weekly treatments overweighting their most recent performance, hampering their ability to learn.

Contracting with Opportunistic Partners: An Incomplete Contracts Approach

After a contract is signed, contracting partners may engage in opportunistic behavior that circumvents the original intention of the agreement governing their business relationship (i.e. complying with the letter but not the spirit of the contract). We use an incomplete contracts approach to show that the anticipation and observability of such behavior are typically not enough to prevent it when parties can renegotiate contractual outcomes. This is because contractually specified incentives inevitably have conflicting effects: they simultaneously increase the likelihood of welfare-improving investments and welfare-reducing opportunistic behavior. The possibility of opportunism thus limits the effectiveness of contractual incentives and may call for simpler (less complete) rather than more complete contractual solutions. We provide general conditions for the optimality of incomplete contracts, a simple characterization of the second-best contract, and some comparative statics. We also discuss implications for vertical integration and make versus buy decisions.