Goal Setting and Monetary Incentives: When Large Stakes Are Not Enough
AbstractThe 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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Bibliographic InfoPaper provided by Chapman University, Economic Science Institute in its series Working Papers with number 12-24.
Length: 61 pages
Date of creation: 2012
Date of revision:
Intrinsic motivation; incentives; goal-setting; reference dependent preferences; virtual organizations.;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- M54 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Labor Management
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-17 (All new papers)
- NEP-CBE-2012-11-17 (Cognitive & Behavioural Economics)
- NEP-EXP-2012-11-17 (Experimental Economics)
- NEP-HRM-2012-11-17 (Human Capital & Human Resource Management)
- NEP-LAB-2012-11-17 (Labour Economics)
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