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Motivation through goal setting

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  • Gómez-Miñambres, Joaquín
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    Abstract

    We study a principal agent model where agents derive a sense of pride from accomplishing production goals. As in classical models, the principal offers a pay-per-performance wage to the agent, determining the agent’s extrinsic incentives. However, in our model, the principal uses goal setting policies as a tool to manage agents’ intrinsic motivation. To capture the idea that different agents respond differently to different goals we introduce the concept of personal standards which determine what becomes challenging and rewarding to them, and hence the intensity of their intrinsic motivation to achieve goals. We show that, at the optimal contract, the agents’ production, as well as the goals set by the principal, increase with the agents’ personal standards. Moreover, we show that an intrinsically motivated agent gets higher surplus than an agent with no intrinsic motivation in the form of informational rents but an agent with a mid-ranged standard (and hence productivity) could end up being the one most satisfied. Therefore, our model can be helpful to explain some empirical findings in the literature of job satisfaction such as the so called “paradox of happiness”.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Psychology.

    Volume (Year): 33 (2012)
    Issue (Month): 6 ()
    Pages: 1223-1239

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    Handle: RePEc:eee:joepsy:v:33:y:2012:i:6:p:1223-1239

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    Web page: http://www.elsevier.com/locate/joep

    Related research

    Keywords: Intrinsic motivation; Goal-setting; Reference dependent preferences; Job satisfaction;

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    References

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    1. Astrid Matthey, 2010. "The Influence of Priming on Reference States," Games, MDPI, Open Access Journal, vol. 1(1), pages 34-52, March.
    2. Stavros Drakopoulos, 2008. "The paradox of happiness: towards an alternative explanation," Journal of Happiness Studies, Springer, vol. 9(2), pages 303-315, June.
    3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    4. Bruno S. Frey & Alois Stutzer, . "What can Economists Learn from Happiness Research?," IEW - Working Papers 080, Institute for Empirical Research in Economics - University of Zurich.
    5. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
    6. Paul Fischer & Steven Huddart, 2008. "Optimal Contracting with Endogenous Social Norms," American Economic Review, American Economic Association, vol. 98(4), pages 1459-75, September.
    7. Drakopoulos, S. A. & Theodossiou, I., 1997. "Job satisfaction and target earnings," Journal of Economic Psychology, Elsevier, vol. 18(6), pages 693-704, November.
    8. Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    9. Phelps, Charlotte D., 2001. "A clue to the paradox of happiness," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 293-300, July.
    10. Shannon W. Anderson & Henri C. Dekker & Karen L. Sedatole, 2010. "An Empirical Examination of Goals and Performance-to-Goal Following the Introduction of an Incentive Bonus Plan with Participative Goal Setting," Management Science, INFORMS, vol. 56(1), pages 90-109, January.
    11. Koch, Alexander K. & Nafziger, Julia, 2011. "Goals and Psychological Accounting," IZA Discussion Papers 5802, Institute for the Study of Labor (IZA).
    12. Koch, Alexander K. & Nafziger, Julia, 2008. "Self-Regulation through Goal Setting," IZA Discussion Papers 3893, Institute for the Study of Labor (IZA).
    13. Mosley, Hugh & Schütz, Holger & Breyer, Nicole, 2001. "Management by objectives in European public employment services," Discussion Papers, Research Unit: Labor Market Policy and Employment FS I 01-203, Social Science Research Center Berlin (WZB).
    14. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 15(5), pages 589-611, December.
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    Cited by:
    1. Joaquín Gómez-Miñambres & Brice Corgnet & Roberto Hernán González, 2012. "Goal Setting and Monetary Incentives: When Large Stakes Are Not Enough," Working Papers 12-24, Chapman University, Economic Science Institute.

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