Chapter Fourteen. How Dysfunction Arises and Persists
The previous several chapters examined how principals should design measurement systems for particular settings. But in instances of dysfunction, principals do not act in accordance with recommendations. What can be concluded from this observation?
The economic tradition seeks to explain behavior as the joint outcome of concurrent optimization by all involved parties. Observed phenomena are the effects of optimal actions; the challenge for the scientist of this tradition is to discover an optimizing model that rationalizes the observed phenomena. There is no difference between what should be and what is, because action-takers always do what they should.1 Therefore, if the predictions of a ...
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