A major problem in assessing bureaucratic performance is the difficulty in judging the final social outcomes stemming from the work of public agencies. As a result, public agencies are frequently evaluated based on the outputs they produce. Agency outputs (such as, criminal cases solved, inspections) are easier to measure than the actual contributions agencies make to social outcomes (such as, preventing workplace discrimination, protecting the environment). When agency performance is evaluated in terms of numerical outputs, bureaucrats have an incentive to maximize outputs, regardless of whether maximizing outputs is the preferred strategy for achieving desired social outcomes (a form of goal displacement). This incentive to maximize outputs may lead to organizational cheating, in which public agencies purposely manipulate output levels to portray their work in the best light possible.

This study examines the problems of goal displacement and organizational cheating in Texas public schools. Specifically, we examine the degree to which school districts cheat to manipulate student pass rates on standardized exams. School districts “cheat” by liberally exempting certain students from these exams in hopes of raising overall district pass rates. Scarce institutional resources and extreme task demands are associated with cheating. From a management perspective, this study demonstrates the problems in implementing performance standards. From an academic perspective, it provides the first theory about when and why organizations cheat.