Target Setting in Tournaments: Theory and Evidence from China
60 Pages Posted: 21 Mar 2017
Date Written: March 19, 2017
Performance targets are widely used to incentivize agents in modern organizations. Motivated by the prevalence of economic targets in all levels of territory administrations in China, this paper proposes a Tullock contest model to study optimal target setting in a multi-layered tournament-based organization. In our model, targets are used by the upper-level official to convey the importance for economic growth and incentivize her subordinates in the tournaments. The key model assumptions are supported by our structural estimation of promotion function. Our model predicts a top-down amplification of economic growth targets along the jurisdiction levels which is consistent with the observed pattern in China. Using both provincial and prefectural level data, we test the model predictions and find consistent evidence.
Keywords: Top-down amplification, bureaucratic incentives, multi-level government, regional competition
JEL Classification: H11, H7, O2, P3
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