The appeals process in principal–agent relationships

The appeals process is employed in many organizations including administrative agencies, regulatory authorities, sports organizations, and private companies. This paper examines the dual role of the appeals process in enhancing fairness and inducing performance in principal–agent relationships in th...

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Bibliographic Details
Published in:Journal of economic behavior & organization 2009-08, Vol.71 (2), p.451-462
Main Author: Dai, Chifeng
Format: Article
Language:English
Subjects:
Accuracy
Agency theory
Appeals
Appeals Fairness Principal-agent relationship
Authority
Evaluation
Fairness
Justice
Organizational analysis
Principal-Agent relationships
Principal-agent theory
Principal–agent relationship
Sports
Studies
Welfare
Welfare economics
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Summary:The appeals process is employed in many organizations including administrative agencies, regulatory authorities, sports organizations, and private companies. This paper examines the dual role of the appeals process in enhancing fairness and inducing performance in principal–agent relationships in the presence of imperfect performance evaluation. Some surprising results emerge. For example, the merit of the appeals process depends on the agent’s aversion to unfairness, and appeals may be optimally denied even if the appeals process is more accurate than the initial evaluation and is costless. An increase in the accuracy of the initial evaluation may reduce the principal’s welfare. Furthermore, the principal’s welfare can increase as the cost of the appeals process increases.
ISSN:0167-2681
1879-1751
DOI:10.1016/j.jebo.2009.02.006