Fishing for Excuses and Performance Evaluation.

Summary We study a principal-agent model in which the agent can provide ex post additional relevant information regarding his performance. In particular, he can provide a legitimate excuse, that is, evidence that a poor result is only due to factors outside his control. However, building a convincing case requires time, time that is not spent on exerting productive eff ort, and thus generating information represents an opportunity cost. We obtain necessary and suffi cient conditions for the principal to prefer a policy of adjusting ex post the performance measure for the information provided by the agent to a policy of conforming to a result-based system with no adjustments. The risk aversion and a possible limited liability of the agent play an important role in the analysis. This paper clarifi es the issues asso- ciated with the so-called \excuse culture" prevailing in some organizations.