Measurement Error, Manipulation, and the Value of Ignoring Short-Term Performance

Date
2019-08-30
Authors
Rothenberg, Naomi
Contributor
Advisor
Department
Instructor
Depositor
Speaker
Researcher
Consultant
Interviewer
Annotator
Journal Title
Journal ISSN
Volume Title
Publisher
Volume
Number/Issue
Starting Page
Ending Page
Alternative Title
Abstract
This paper studies the effect of measurement error and manipulation on a principal's preference for whether or not to use a short-term performance measure for firing an agent, whose competence is unknown. The short-term performance measure is an imperfect signal of the firm's unobservable long-term value, but is subject to manipulation, which, if successful, results in a favorable performance measure. A competent agent's successful manipulation is beneficial because it reduces inefficient firing, but an incompetent agent's successful manipulation is costly because of inefficient retention. A more informative signal about the competent agent's performance can either increase or decrease inefficient firing, depending on whether the agent's manipulation is successful. Thus, the principal prefers to ignore short-term performance when the signal about the competent agent's performance is neither accurate nor inaccurate. A more informative signal about the incompetent agent's performance can either increase or decrease inefficient retention, depending on whether the agent's manipulation is successful, and, thus, has a non-monotonic effect on the value of ignoring short-term performance. The results have implications for understanding how short-term performance evaluation can be detrimental to an organization's long-term value due to the costs of the firing and retention errors.
Description
Keywords
performance evaluation, measurement error, manipulation, job retention
Citation
Extent
Format
Geographic Location
Time Period
Related To
Table of Contents
Rights
Rights Holder
Local Contexts
Collections
Email libraryada-l@lists.hawaii.edu if you need this content in ADA-compliant format.