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Friday, October 28, 2011
Presenter: Mara Lederman, University of Toronto
Topic: Quality Disclosure and Gaming: Do Employee Incentives Matter?
We investigate gaming of a public disclosure program and, in particular, whether gaming depends on the incentives provided to the employees who are most likely to carry out the gaming. We do this in the context of the government-mandated disclosure of airline on-time performance. While this program collects data on the actual minutes of delay incurred on each flight, it ranks airlines based only on the fraction of their flights that arrive 15 or more minutes late. This creates incentives for airlines to game the program by reducing delays on specifically those flights they expect to arrive with about 15 minutes of delay. In addition, several airlines have introduced employee incentive programs based explicitly on the airline’s performance in the government program. Our empirical analysis finds no evidence of gaming by airlines without incentive programs or with incentive programs with targets that are unrealistically hard to achieve.
On the other hand, we find strong evidence of gaming by airlines that implemented incentive programs with targets that could be – and were - achieved. Specifically, we find that their flights that are predicted to arrive with about 15 minutes of delay have significantly shorter taxi-in times and are significantly more likely to arrive exactly one minute sooner than predicted. Our findings highlight that gaming of a disclosure program will not only depend on the design of the program but will also depend on if and how the measured quality dimensions can be manipulated and whether those who are in a position to manipulate them have incentives to do so.