Performance Management in Public Higher Education: Unintended Consequences and the Implications of Organizational Diversity

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Governments are increasingly using performance management systems to improve organizational accountability and effectiveness. Critics argue these systems create perverse incentives and neglect important differences in organizational values, missions, and resources. These concerns are particularly salient in public higher education as state governments apply uniform performance accountability policies across diverse institutions. A growing body of literature suggests that these policies do not improve performance, but few studies consider their potential unintended consequences or the implications of organizational differences, such as resource dependence, for implementation. By using a difference-in-differences approach, I find that performance-funding’s effects vary depending on institutions’ dependence on state funding. Institutions less dependent on state funding experience graduation rate gains, while more dependent institutions do not. I also find that implementing performance funding is associated with increased selectivity in admissions and a decline in minority enrollment. Broadly, the results suggest organizations will be more successful under performance management systems when they have greater flexibility in their resources and missions consistent with the performance regimes. The results also suggest, however, that institutions may realize performance gains at the expense of other important values.