Performance Management Meets Red Tape: Bounded Rationality, Negativity Bias, and Resource Dependence

Abstract Governments around the world have implemented reforms to reduce red tape, but little evidence exists about whether they have achieved their goals. Utilizing a quasi‐experimental regression discontinuity design, this research examines the impact of a policy implemented by the Korean central government to reduce local levels of regulatory red tape. The findings show, first, that the centrally designed reform significantly reduced local levels of red tape, but the reduction occurred only among low‐performing localities. This supports the claim that organizations’ responses to positive and negative performance information are asymmetric—the negativity bias hypothesis. This finding is explained by the bounded rationality view of organizational decision‐making. Second, the impact was clearest among localities with high fiscal dependence on the central government. This supports the resource dependence hypothesis, which postulates that a policy's impact depends on the power imbalance between localities and the central government.