Abstract: Employees are often assigned tasks comprising two distinct phases: In the first phase, ideas are generated; in the second phase, the best idea is implemented. Furthermore, it is common for supervisors to give feedback to their employees during this process. This paper studies the supervisor’s problem. Supervisors face the following tradeoff: while honest feedback encourages employees to discard bad ideas, it can also be demotivating. We obtain three main results. First, the supervisor only gives honest feedback to agents who believe in their ability to succeed. Second, receiving honest feedback leads such high self-opinion agents to exert more effort. Third, overconfidence is potentially welfare improving.

Abstract: Diversity related reputation is becoming increasingly important for managers in organisations. We study a principal manager career concern relationship where manager and principal may not have an identical bias toward diversity. In such a setting, the misaligned manager faces the following trade-off; while hiring minorities reduces his utility, not hiring them may cost him his career. We show that when the success of employees depends on their ability and manager's effort, with low reputation, a positive bias of the principal induces sabotage of minority groups. If the principal has no bias toward diversity, diversity marginally improves. However, if the principal has a positive bias toward diversity, the misaligned manager improves reputation by hiring more from minority groups but sabotages them. We define this, diversity paradox. If there is no positive bias toward diversity, diversity does not improve much. However, if there is, diversity improves at the cost of increased sabotage. We show that minorities in low productivity jobs are more likely to be sabotaged.

Abstract: We consider how a profit-maximizing intermediary designs, prices, and discloses tests to facilitate signalling between a sender and a receiver. Designing more difficult tests increases the willingness-to-pay of the more able senders, but reduces that of the less able senders. We show that the intermediary is not indifferent between different tests with the same informativeness. Notably, the intermediary designs the easiest test possible to convince the receiver of the sender's ability. ``Splitting a single test into many'' helps the intermediary extract a higher surplus from better senders by inducing more participation of the bad senders. The reason is two-fold. First, making the test easier induces senders of all types to take the test more often to prove their mettle. Second, the decline in prices (due to more tests) is less than the increase in the number of tests.

Abstract: Promotions are signals of a worker's ability. We study a framework in which a firm designs the disclosure of information through promotions to increase the worker's effort. When high-productivity firms can screen workers better, promotion improves worker's prospects by making him more attractive to these firms. We show that low-productivity firms prefer to distort the promotion signal away from the full revelation of a worker's type. While distorting promotion signals increases the effort of a low-ability worker, it decreases the effort of a high-ability one relative to the fully separating contract. We illustrate the conditions on the cost of effort for optimality of the signalling contracts.
Our result qualifies the traditional notion of "no distortions at the top" in Contract Theory ---the firm substitutes informational rents from the high-type for similar rents from the low-type worker. Finally, we show that a worker's career prospect is path-dependent.