Target ratcheting

Wim A. Van der Stede

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Here is one diehard maxim of business: don't overshoot your budget target because next thing you know your target for next year will be tougher yet. Target ratcheting at work; that is, when you do better than target, your next target is even higher, but when you do worse, your target won’t be reduced. So why shoot yourself in the foot? Add to this the common belief in budgeting settings that either you spend it or lose it, and thus arises the motivation to not only "not overshoot" but "spend more" to boot. A double whammy: leave money unearned and spend more than is necessary.

JEL-codes: M40 (search for similar items in EconPapers)
Date: 2015
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Published in LSE Accounting, 2015, 6, pp. 17

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