Goal setting in the principal-agent model: Weak incentives for strong performance

Arbeitspapier

We study a principal-agent framework in which principals can assign wage-irrelevant goals to agents. We find evidence that, when given the possibility to set wage-irrelevant goals, principals select incentive contracts for which pay is less responsive to agents' performance. Agents' performance is higher in the presence of goal setting despite weaker incentives. We develop a principal-agent model with reference-dependent utility that illustrates how labor contracts combining weak monetary incentives and wage-irrelevant goals can be optimal. The pervasive use of non-monetary incentives in the workplace may help account for previous empirical findings suggesting that firms rely on unexpectedly weak monetary incentives.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CeDEx Discussion Paper Series ; No. 2016-09

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: Laboratory, Group Behavior ; Organizational Behavior; Transaction Costs; Property Rights ; Personnel Economics: Labor Management
• Subject: principal-agent models ; incentive theory ; non-monetary incentives ; goal setting ; reference-dependent utility ; laboratory experiments

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Corgnet, Brice ; Gómez-Miñambres, Joaquín ; Hernán-González, Roberto
• Event: Veröffentlichung
• (who): The University of Nottingham, Centre for Decision Research and Experimental Economics (CeDEx)
• (where): Nottingham
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/163010
• Last update: 10.03.2025, 11:42 AM CET