Working Paper: CEPR ID: DP4514
Authors: Pascal Courty; Gerald Marschke
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.
Keywords: gaming; government; organization; multitasking; performance; incentive; performance measurement
JEL Codes: H72; J33; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of new performance measures (L25) | Decrease in correlation between performance measures and true organizational goals (L25) |
| Decrease in correlation between performance measures and true organizational goals (L25) | Gaming behavior indicated by decrease in correlation (C73) |
| Decrease in correlation between performance measures and true organizational goals (L25) | Gaming responses (C72) |
| Performance measures (e.g., employment rates) (E24) | Actual outcomes (e.g., earnings) (G19) |