This paper develops an overlapping generations model of an economy composed of
individuals who have performance ratings. These ratings update each period with new
performance scores, while individual talents also evolve. If effort is costly, the rating
system serves as both a yardstick of achievement and a dynamic incentive system.
Particular attention is paid to the implications of the forgetful and anonymous nature of
many real-world rating systems. We explore the information content of ratings and derive
the maximally informative rating system. We then study the the incentives provided by
rating systems and characterize the agent's optimal effort function. We show that ratings
generally cannot simultaneously be statistically accurate and induce maximal effort and
explore this tradeoff in various environments.

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