An Empirical Investigation of Gaming Responses to Explicit Performance Incentives

This paper studies a particular kind of gaming responses to explicit incentives in a large government organization. The gaming responses we consider occur when agents strategically report their performance outcomes to maximize their awards. An important contribution of this work is to examine whether this behavior diverts resources (e.g. agents’ time) from productive activities or whether it simply reflects an accounting phenomenon. We evaluate the efficiency impact of the behavior we identify and find that it has a negative impact on the true goal of the organization. (JEL J33, L14) Pascal Courty, Department of Economics, London Business School, Regents’ Park, NW1 4SA, London, UK, [email protected] and Gerald Marschke, Department of Economics and Department of Public Administration & Policy, BA-110, SUNY-Albany, Albany, NY 12222, [email protected]. Courty and Marschke acknowledge support from NSF-SBR-91-31143 to J. Heckman. Courty acknowledges support from the Sloan Foundation and The University of Chicago. Marschke acknowledges support from a grant from the Upjohn Institute and a grant from the American Bar Foundation. We are grateful for the support and encouragement of James Heckman. We thank Michael Gibbs, Robert LaLonde, Canice Prendergast, Sherwin Rosen, Jeffrey Smith and seminar participants at Chicago, Rochester, Arizona, IESE, and Bristol for helpful suggestions. All errors are exclusively the responsibility of the authors.