Aggregate and disaggregate performance measurements: Inter‐temporally correlated performance measures with limited commitment

Abstract

AbstractThis study employs the LEN model in analyzing aggregations and disaggregate use of inter‐temporally correlated performance measures in two‐period agencies with limited commitment. The optimal disaggregate use where an agent's incentive is on basic measures suffers information loss to depend on agency particulars. Induced action is restricted by the subsequent period action, and limited commitment leads to fostering late optimal effort inducement. Performance measure aggregation yields inaccurate inter‐temporal information relative to the disaggregate use and leads to raising early optimal effort inducement. Both the total informativeness and the difference in informativeness of performance measures fortify early optimal effort inducement.