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A General Test of Gaming

  • Gerald Marschke
  • Pascal Courty

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 behavior 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 University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 04-04.

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Date of creation: 2004
Date of revision:
Handle: RePEc:nya:albaec:04-04
Contact details of provider: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Phone: (518) 442-4735
Fax: (518) 442-4736

Order Information: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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  1. Heckman, James J. & Heinrich, Carolyn J. & Smith, Jeffrey A., 2002. "The Performance of Performance Standards," IZA Discussion Papers 525, Institute for the Study of Labor (IZA).
  2. 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.
  3. Courty, Pascal & Marschke, Gerald, 2002. "An Empirical Investigation of Gaming Responses to Explicit Performance Incentives," CEPR Discussion Papers 3164, C.E.P.R. Discussion Papers.
  4. 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).
  5. 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.
  6. 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.
  7. Robert Gibbons, 1996. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc.
  8. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
  9. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
  10. Gerald Marschke, 2000. "Performance Incentives and Bureaucratic Behavior: Evidence from a Federal Bureaucracy," Discussion Papers 00-09, University at Albany, SUNY, Department of Economics.
  11. George Baker & Robert Gibbons & Kevin J. Murphy, 1993. "Subjective Performance Measures in Optimal Incentive Contracts," NBER Working Papers 4480, National Bureau of Economic Research, Inc.
  12. James J. Heckman, 1991. "Randomization and Social Policy Evaluation," NBER Technical Working Papers 0107, National Bureau of Economic Research, Inc.
  13. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  14. 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.
  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. repec:tpr:qjecon:v:113:y:1998:i:1:p:149-185 is not listed on IDEAS
  17. 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.
  18. 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.
  19. 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.
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