Negative Weights for Performance Measures

Abstract

Quantitative performance measurement is a controversial idea in the public sector. This paper argues that management by measurement is sensible if the measurement methods have a sufficient quality. In particular, quantitative performance measures have to address problems of gaming and monitoring intensity. I look at the assignment of negative weights to poor, but informative, performance measures even if these measures have a positive correlation with the non-contractible performance objective. In a simple agency relationship, I show how a poor measure with negative weight can serve as an indicator for manipulation. However, the benefits derived from a negative weight may come at the price of increased measurement risk. Healthcare and research organizations provide examples of how negative weights can improve performance measurement.

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