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Goal Setting and Monetary Incentives: When Large Stakes Are Not Enough

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  • Joaquín Gómez-Miñambres

    ()
    (Economic Science Institute, Chapman University)

  • Brice Corgnet

    ()
    (Argyros School of Business and Economics, Chapman University)

  • Roberto Hernán González

    (Universidad de Granada, Department of Economic Theory and Economic History)

Abstract

The aim of this paper is to test the effectiveness of wage-irrelevant goal setting policies in a laboratory environment. In our design, managers can assign a goal to their workers by setting a certain level of performance on the work task. To establish our theoretical conjectures we develop a model where assigned goals act as reference points to workers’ intrinsic motivation, creating a sense of gain when attained and a sense of loss when not attained. Consistent with our theoretical framework, we find evidence that managers set goals that are challenging but attainable for an average-ability worker. Workers respond to these goals by increasing effort, performance and by decreasing on-the-job leisure activities with respect to the no-goal setting baseline. We study the interaction between goal setting and monetary rewards by considering different values for the monetary incentives involved in completing the task. Interestingly, we find that goal setting is especially effective when monetary incentives are strong. These results suggest that goal setting may foster workers’ intrinsic motivation and increase their level of performance beyond what is achieved using solely monetary incentives.

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File URL: http://www.chapman.edu/research-and-institutions/economic-science-institute/_files/WorkingPapers/minambres-corgnet-gonzalez-goal-setting-and-monetary-incentives.pdf
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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 12-24.

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Length: 61 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:chu:wpaper:12-24

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Related research

Keywords: Intrinsic motivation; incentives; goal-setting; reference dependent preferences; virtual organizations.;

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  1. Kevin Murdock, 2002. "Intrinsic Motivation and Optimal Incentive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 650-671, Winter.
  2. Pokorny, Kathrin, 2008. "Pay--but do not pay too much: An experimental study on the impact of incentives," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 251-264, May.
  3. Dickinson, David L, 1999. "An Experimental Examination of Labor Supply and Work Intensities," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 638-70, October.
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  5. Brice Corgnet & Roberto Hernán-González & Stephen Rassenti, 2011. "Real Effort, Real Leisure and Real-time Supervision: Incentives and Peer Pressure in Virtual Organizations," Working Papers 11-05, Chapman University, Economic Science Institute.
  6. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760.
  7. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
  8. Gneezy, U. & Rustichini, A., 1998. "Pay Enough - Or Don't Pay at All," Discussion Paper 1998-57, Tilburg University, Center for Economic Research.
  9. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  10. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 15(5), pages 589-611, December.
  11. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
  12. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  13. Uri Gneezy & Stephan Meier & Pedro Rey-Biel, 2011. "When and Why Incentives (Don't) Work to Modify Behavior," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 191-210, Fall.
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