Performance Measurement and Information Production

Christian Laux and Volker Laux

Journal of Institutional and Theoretical Economics (JITE), 2006, vol. 162, issue 3, 412-423

Abstract: When performance measures are used for evaluation purposes, agents have some incentives to learn how their actions affect these measures. We show that the use of imperfect performance measures can cause an agent to devote too many resources (too much effort) to acquiring information. Doing so can be costly to the principal, because the agent can use information to game the performance measure to the detriment of the principal. We analyze the effect of endogenous information acquisition on the optimal incentive strength and the quality of the performance measure used.

JEL-codes: D82 J33 (search for similar items in EconPapers)
Date: 2006
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