The purpose of this paper is to study the usefulness of performance standards. It is often recommended that subordinates should participate in determining their own standards of performance, the main reason being of a behavioral nature. I shall demonstrate that there is also an economic rationale for this participation when the participation is used to convey information from a better-informed subordinate to a lessinformed manager. Given that this information will be used for the subordinate's performance evaluation, the subordinate has an obvious incentive to cheat in this reporting. I construct an agency model which includes these reporting incentive problems and use it to study the effects of participation on the agency and the value of information systems to the agency. Throughout the analysis the agent will be kept at a constant level of utility so that the principal's utility becomes a measure of the agency's preferences, thus reflecting pareto optimality. The methodology in this paper is closely related to that of Demski and Feltham [1978], Magee [1980], and Baiman and Demski [1980]. Magee [1980] in particular studied issues related to participation, but he did not confine his study to pareto optimal contracts, as will be the case in this paper. In order to maintain a tractable problem, many behavioral factors will be left outside the formal analysis despite the fact these have played a major role in the behavioral literature on participation (cf. Argyris [1952], Becker and Green [1962], Stedry [1960], and Swieringa and Moncur [1975]).