Manager and employee behaviors in response to performance signals in public organizations
Authors:   , Kim Taek Kyu 
Published: October 2023

This dissertation explores the diverse behaviors of managers and employees in response to performance signals in public organizations. Performance outcomes provide crucial information for actors related to public organizations such as politicians, public officials, and citizens. Previous literature has discussed performance information as a management tool for holding public officials accountable, facilitating organizational learning, and monitoring the activities of public organizations. Nonetheless, the research has been limited to explaining how performance outcomes affect manager and employee decision-making, including organization strategy, goal setting, and even unethical behaviors. This dissertation specifically focuses on manager decision-making on co-production and effort substitution and employee decision-making on employee fraud. Each of these concepts regards organizational efficiency and public values differently. This dissertation, hence, is laid out into three separate but inter-linked chapters, individually focusing on each of the important concepts in public management. Chapter 1 is motivated by the following question: Do organizations engage in co-production in response to performance signals? Co-production is a set of activities in which public organization actors and stakeholders work together for public service delivery; it positively impacts reducing costs and improving service quality. However, co-production may be risky because it causes unintended effects such that it complicates the delivery process by empowering external actors. Given the benefits and risks, would organizations deliberately increase effort for co-production under certain circumstances, for example, when they are underperforming? To examine the research question, this study employs a local polynomial regression discontinuity (RD) design based on school performance data and ratings from School Quality Reports in New York City public schools. The findings show that public organizations are more likely to increase the degree of co-production in response to performance shortfall. If Chapter 1 suggests co-production as a potential strategy based on the assumption of a single-goal environment, in Chapter 2, this dissertation investigates the management strategy in response to performance shortfalls in a multiple-goal environment. Specifically, Chapter 2 focuses on effort substitution, which is an unintended effect of goal prioritization. While goal prioritization leads to performance improvement, it could also cause public managers to deliberately pay less attention to low-stake goals in their performance metrics. It narrowly focuses on efficiency and may harm equity and democracy. This chapter therefore examines whether there is effort substitution towards high-stake goals in public organizations triggered by negative performance feedback. Similar to the previous chapter, evidence of this chapter comes from a local polynomial regression discontinuity (RD) design based on New York City public school data. Empirical evidence from this study presents that low performing organizations prioritize overall performance outcomes but pay less attention to low-stakes goals. Different from other chapters focusing on managerial behaviors, Chapter 3 offers a novel perspective on the relationship between performance outcomes and employee behaviors. This chapter investigates employee fraud, which is different from organizational cheating in that it is the employee behavior to gain financial advantages for personal enrichment by misusing organizational resources. Although previous public management research discussed organizational cheating related to performance, what is still relatively unknown is how performance outcomes affect employee fraud. To test this relationship, this study links the data from performance evaluation and integrity assessment for South Korean government corporations. Global polynomial regression discontinuity design (RDD) was employed to estimate the impact of performance shortfalls on employee fraud. The results show that employees in low-performing public corporates are more likely to abuse operating expenses, benefit allowance, and project expenses than employees in relatively high-performing organizations. In conclusion, the level of past performance is highly influential for manager and employee behaviors. This possibly provides an important reference point for subsequent behaviors as it contributes to the burgeoning performance management research by showing how performance signals affect subsequent managers' and employees' decision-making in diverse contexts. It also offers insight into novel behaviors of managers and employees in response to performance signals; it connects the performance management research and literature on co-production, goal prioritization, and counterproductive work behaviors. Finally, this dissertation provides an opportunity to discuss problemistic search and accountability mechanism as a theoretical framework to explain the reasons for behaviors.