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The Performance Measurement Trap

Author

Listed:
  • Dmitri Kuksov

    (Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080)

  • J. Miguel Villas-Boas

    (Haas School of Business, University of California, Berkeley, Berkeley, California 94720)

Abstract

This paper investigates the effect of performance measurement on the optimal effort allocation by salespeople when firms are concerned about retention of salespeople with higher abilities. It shows that introducing a salesperson performance measurement may result in productivity, profit, and welfare losses when all market participants optimally respond to the expected information provided by the measurement and the (ex post) optimal retention efforts of the firm cannot be (ex ante) contractually prohibited. In other words, the dynamic inconsistency of the management problems of inducing the desired effort allocation by the salespeople and the subsequent firm objective to retain high-ability salespeople may result in performance measurement yielding an inferior outcome.

Suggested Citation

  • Dmitri Kuksov & J. Miguel Villas-Boas, 2019. "The Performance Measurement Trap," Marketing Science, INFORMS, vol. 38(1), pages 68-87, January.
    • Handle: RePEc:inm:ormksc:v:38:y:2019:i:1:p:68-87
    DOI: 10.1287/mksc.2018.1122
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    References listed on IDEAS

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    3. Ying Bao & Mengze Shi & Ajay Kalra, 2022. "Designing Product Development Contracts in the Presence of Managerial Lobbying," Management Science, INFORMS, vol. 68(9), pages 6797-6818, September.

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