Performance Measurement and Information Production

20 Pages Posted: 3 Dec 2004

See all articles by Christian Laux

Christian Laux

Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF); European Corporate Governance Institute (ECGI)

Volker Laux

University of Texas at Austin - McCombs School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 2005

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 impact of endogenous information acquisition on the optimal incentive strength and the quality of the performance measure used.

Keywords: Performance measurement, information acquisition

JEL Classification: D82, J33, M40, M46

Suggested Citation

Laux, Christian and Laux, Volker, Performance Measurement and Information Production (December 2005). Available at SSRN: https://ssrn.com/abstract=625682 or http://dx.doi.org/10.2139/ssrn.625682

Christian Laux

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Volker Laux (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

2317 Speedway
Austin, TX Texas 78712
United States

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