Rating systems not only provide information to users but also motivate the rated agent. This paper solves for the optimal (eﬀort-maximizing) rating system within the standard career concerns framework. It is a mixture two-state rating system. That is, it is the sum of two Markov processes, with one that re-eﬀects the belief of the rater and the other the preferences of the rated agent. The rating, however, is not a Markov process. Our analysis shows how the rating combines information of diﬀerent types and vintages. In particular, an increase in eﬀort may aﬀect some (but not all) future ratings adversely.
Hörner, Johannes and Lambert, Nicolas, "Motivational Ratings" (2016). Cowles Foundation Discussion Papers. 2479.