Do Government Bureaucrats Make Effective Use of Performance Management Information

This research on a local job-training agency's use of performance-based contracting addresses a central question: Do JTPA program administrators use the performance standards system effectively to motivate behavior on the part of contractors, behavior that enhances agency performance and is consistent with program goals? Ifind some evidence that this agency uses information obtained from its performance-based contracting system to make resource allocation decisions. Service providers' performance relative to cost standards emerges as the most important criteria in these decisions. I conclude, however, that the performance standards system is not well designed, as performance measures are not strongly correlated with program goals and the predominance of cost-per-placement considerations has negative implications for service quality. Regardless of the type of organization and its mission or product, the use of performance standards and incentives serves a basic objective: to focus management attention on important organizational goals and to motivate behavior and decision making that enhance organizational performance toward those goals. When performance standards are employed in contracts between organizations or in some contract structures within organizations, linking compensation and other rewards or sanctions to contractors' or agents' performance relative to specific goals, they also may be used to manage risk and moderate principal-agent problems. Performance standards are used widely in private, for-profit organizations, where organizational goals typically center on 363/Journal of Public Administration Research and Theory This research was supported by grants from the American Bar Foundation, the Joyce Foundation, and the John D. and Catherine T. MacArthur Foundation. I thank James Heckman, Peter Mueser, Burt Barnow, Jeffrey Smith, Neil Hohmann, and anonymous reviewers for helpful comments and Annie Zhang for computer programming assistance. J-PART 9(1999):3:363-393 This content downloaded from 157.55.39.163 on Wed, 21 Sep 2016 04:28:02 UTC All use subject to http://about.jstor.org/terms Performance Management Information profit maximization. In the last two decades, performance standards also have drawn increasing attention from public policy makers. The Job Training Partnership Act (JTPA) of 1982 was the first large-scale, federally funded program to mandate the use of performance standards in state and local programs. Performance standards are being introduced into welfare-towork programs, child welfare agencies, child support enforcement programs, and other programs funded partly or entirely by the government. For example, under the Temporary Assistance for Needy Families program that has replaced Aid to Families with Dependent Children, states are competing for one billion dollars in bonuses based on their success in meeting employment goals and teen birth reduction goals. In addition, the Casey Foundation of Baltimore currently is supporting efforts to assist child welfare agencies in implementing performance-based contracting, while the State of Illinois already has begun trials of these performance initiatives in its foster care system. Political support for the use of performance standards continues to grow, consistent with public demands for increased efficiency and accountability from government agencies. While much has been said in theory and little is known in practice about the operation of performance standards and incentives, most of what we have learned comes from studies of private, for-profit organizations. Leading this research, Baker (1992), Baker, Gibbons, and Murphy (1994 and 1996), and Hart and Holmstrom (1987; 1988; 1995), and Holmstrom and Milgrom (1987; 1991; 1994) apply established theories of the firm neoclassical theory, principal-agent theory, transaction costs theories, and property rights approaches-to study contracts and incentives within and between firms. They examine the use of performance measures and derive theories of optimal incentive contracts under varying conditions. Employing a primarily theoretical approach, they also study the efficiency of performance measures and the distortionary effects of nonoptimal incentive