An Empirical Investigation of Gaming Responses to Performance

Abstract

This paper studies the provision of explicit incentives and the measurement of performance in a large service organization. The output produced by the agents of this organization is not contractible and is proxied by imperfect measures of performance. The measured outcomes are determined partly by agents' effort and partly by random factors which are observed by agents but are independent of their effort. We present evidence that agents use their private information to take credit for some outcomes that would have occurred in the absence of their intervention. Furthermore, we present evidence that these performance-driven incentive responses do not maximize the organization's objectives. This paper is one of the first attempts to demonstrate gaming in performance incentives by conducting a formal efficiency analysis.

JEL Classification: J33, L14