The Use of Performance Measurement Systems in the Public Sector: Effects on Performance

Abstract

In this project, we study the use of performance measurement systems in the public sector. We hypothesize that the way in which these systems are being used depends on the characteristics of the activities -particularly on contractibility, which is a broad construct encompassing clarity of goals, the ability to select undistorted performance metrics, and the degree to which managers know and control the transformation process. We expect that public sector organizations that use their performance measurement systems in ways that match the characteristics of their activities outperform those that fail to achieve such fit. We also examine the influence of political or stakeholder pressure on performance measurement system use. We test our hypotheses using survey data from 101 public sector organizations. Our findings indicate that contractibility of performance moderates the relationship between the use of the performance measurement system and performance. Using the performance measurement system for incentive purposes negatively influences organizational performance, but this effect is less severe when contractibility is high. We also find that an exploratory use of the performance measurement system tends to enhance performance. This positive effect is independent of the level of contractibility. Finally, we find that stakeholders’ demands for information on goal achievement lead to a more intense use of performance measurement systems for exploratory purposes.

Keywords: performance measurement, public sector, New Public Management

JEL Classification: M41, D73, D23