3. Performance Management, Gaming, and Monitoring in Democratic Systems

The chapter addresses the problem of monitoring gaming activities in performance management mechanisms. We explain how the fundamental structures of democracy motivate all of the players in the public domain to engage in activities to game the system. The dual role that politicians, regulators, and senior administrators play as principals and agents, and the fact that the interests of principals and agents may align creates acute problems of responsibility, accountability, and reporting. Principals may devise an explicit contract to reduce the agents’ gaming efforts by introducing performance measures that benefit them, and/or by imposing painful penalties on the agents’ gaming. On the organizational level, performance management systems should emphasize learning through dialogue while avoiding the attachment of incentives to performance.