Pre-Hire Screening and Subjective Performance Evaluations

We study a two-stage model in which the agent's ability is initially unknown to any party, but the principal can choose a pre-hire screening scheme to discover the agent's ability before offering a contract. Perfect screening enables the principal to fine-tune the contract to the agent's ability, but it also prevents her from enforcing a contract that is contingent on subjective interim performance measures. Given that interim performance measures are critical for motivating first-stage effort, the principal may benefit from adopting no screening or partial screening. When partial screening is employed, the halo effect---a commonly observed bias in subjective evaluation practices---emerges in the equilibrium