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A General Test of Gaming

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  • Courty, Pascal
  • Marschke, Gerald

Abstract

An important lesson from the incentive literature is that explicit incentives may elicit dysfunctional and unintended responses, also known as gaming responses. The existence of these responses, however, is difficult to demonstrate in practice because this behaviour is typically hidden from the researcher. We present a simple model showing that one can identify gaming by estimating the correlation between a performance measure and the true goal of the organization before and after the measure has been activated. Our hypothesis is that gaming takes place if this correlation decreases with activation. Using data from a public sector organization, we find evidence consistent with our hypothesis. We draw implications for the selection of performance measures.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4514.

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Date of creation: Aug 2004
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Handle: RePEc:cpr:ceprdp:4514

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Keywords: gaming; government organization; multi-tasking; performance incentive; performance measurement;

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References

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  1. James Heckman & Carolyn Heinrich & Jeffrey Smith, 2002. "The Performance of Performance Standards," NBER Working Papers 9002, National Bureau of Economic Research, Inc.
  2. Gerald Marschke & Pascal Courty, 2002. "An Empirical Investigation of Gaming Responses to Explicit Performance Incentives," Discussion Papers 02-06, University at Albany, SUNY, Department of Economics.
  3. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  4. Cragg, Michael, 1997. "Performance Incentives in the Public Sector: Evidence from the Job Training Partnership Act," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(1), pages 147-68, April.
  5. James J. Heckman, 1991. "Randomization and Social Policy Evaluation," NBER Technical Working Papers 0107, National Bureau of Economic Research, Inc.
  6. Heckman, James J & Smith, Jeffrey, 1997. "Making the Most Out of Programme Evaluations and Social Experiments: Accounting for Heterogeneity in Programme Impacts," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 487-535, October.
  7. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  8. Gerald Marschke, 2000. "Performance Incentives and Bureaucratic Behavior: Evidence from a Federal Bureaucracy," Discussion Papers 00-09, University at Albany, SUNY, Department of Economics.
  9. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1125-56, November.
  10. Levitt, Steven D., 2002. "Rotten Apples: An Investigation of the Prevalence and Predictors of Teacher Cheating," Berkeley Olin Program in Law & Economics, Working Paper Series qt2wj7v1j4, Berkeley Olin Program in Law & Economics.
  11. Pascal Courty & Gerald Marschke, 2003. "Dynamics of Performance-Measurement Systems," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 268-284, Summer.
  12. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
  13. Robert S. Gay & Michael E. Borus, 1980. "Validating Performance Indicators for Employment and Training Programs," Journal of Human Resources, University of Wisconsin Press, vol. 15(1), pages 29-48.
  14. Gibbs, Michael & Merchant, Kenneth A. & Van der Stede, Wim A. & Vargus, Mark A., 2004. "Performance Measure Properties and Incentives," IZA Discussion Papers 1356, Institute for the Study of Labor (IZA).
  15. Simon Burgess & Carol Propper & Deborah Wilson, 2002. "Does Performance Monitoring Work? A Review of the Evidence from the UK Public Sector, Excluding Health Care," The Centre for Market and Public Organisation 02/049, Department of Economics, University of Bristol, UK.
  16. Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
  17. Robert Gibbons, 1997. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc.
  18. Paul Oyer, 1998. "Fiscal Year Ends And Nonlinear Incentive Contracts: The Effect On Business Seasonality," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 149-185, February.
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