Principal–Agent or Principal–Steward: How Ministry–Agency Relations Condition the Impact of Performance Management in the Steering of Government Agencies

Abstract

Using agency and stewardship theories, this article investigates conditions that affect the impact of performance management in the ministerial steering of agencies. Agency theory assumes that agencies act opportunistically, leading to low trust between the ministry and the agency. Conversely, stewardship theory assumes that agencies act trustworthily. Arguably, however, in the steering of agencies, the impact of performance management depends on performance management practices and the type of ministry–agency relation. The effect of performance contract design and a top-down or bottom-up approach to performance management on the impact of performance management is analyzed in the context of whether the ministry–agency relation tends toward the principal–agent or principal–steward type. The data were obtained from a survey of bureaucrats employed in government agencies in Norway and a systematic analysis of official policy documents. The results show that a bottom-up approach increases the impact of performance management in principal–steward relations but not in principal–agent relations. Performance contract design has no effect on the impact of performance management, irrespective of relationship characteristics.