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A General Test for Distortions in Performance Measures

  • Pascal Courty

    (Department of Economics, European University Institute)

  • Gerald Marschke

    (Department of Economics and Department of Public Administration and Policy, University at Albany, State University of New York, NBER, and IZA)

Results from the incentive literature suggest that performance measures are often distorted, eliciting dysfunctional and unintended responses. The existence of these responses, however, is difficult to demonstrate in practice because this behavior is typically hidden from the researcher. We present a simple model showing that one can test for the existence of distortions by estimating the change in the association between a performance measure and the true goal of the organization with the measure's introduction. Using data from a public-sector organization, we find evidence consistent with the existence of distortions. We draw implications for the selection of performance measures. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 90 (2008)
Issue (Month): 3 (August)
Pages: 428-441

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Handle: RePEc:tpr:restat:v:90:y:2008:i:3:p:428-441
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