The Empirical Analysis of Target Ratcheting Under Self-Evaluation
38 Pages Posted: 25 Nov 2013
Date Written: September 30, 2013
In this research, I examine the ratchet principle in the self-evaluation setting using the data from Korean government R&D programs. I find that self-set targets also ratchet because a subordinate anticipates that the self-set targets will be evaluated by external evaluators later on. I also find that qualitative measures interact with quantitative measures in the target setting process. Specifically, I show that when actual performance exceeds the target, the increase in the quantitative target in the next year becomes smaller as the current qualitative performance is higher. It indicates that subordinates are likely to ease the quantitative target to offset the disadvantage from higher expectation for qualitative performance. Finally, to test how much ratcheting occurs, I compare self-set targets with theoretical targets. I find that subordinates set actual targets lower than theoretical targets. It implies that they tend to create slack into their targets.
Keywords: target ratcheting, quantitative performance measure, qualitative performance measure
JEL Classification: M49
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