High-powered incentives and their possible dysfunctionality in public administration

The article discusses the normative documents associated with the introduction of Russian regions’ heads key performance indicators (KPI). It draws attention to negative contract externalities intensively discussed in the economic literature of recent decades. Negative contract externalities accompanying the incentive contracts are typically associated with multitask moral hazard.

They can serve as an explanation of KPI failure in many business firms. The results of KPI application in the sphere of public administration will inevitably become even more disappointing.