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We study a principal–agent problem with sequential efforts and limited liability. An interim performance evaluation (IPE) allows the principal to learn the success of earlier efforts with some noise. We find conditions under which it is desirable to conduct such an IPE. A trade-off is identified between the beneficial effect of the agent's morale being boosted by a positive IPE outcome and the harmful effect of his morale being damaged by a negative one. We study both objective and subjective IPEs and characterise in each scenario the optimal contract and compare the corresponding effort plan with the first-best effort plan.