Performance Measurement, Expectancy and Agency Theory: An Experimental Study
AbstractTheoretical analyses of (optimal) performance measures are typically performed within the realm of the linear agency model. This model implies that, for a given compensation scheme, the agent’s optimal effort is unrelated to the amount of noise in the performance measure. In contrast, expectancy theory as developed by psychologists predicts lower effort levels for noisier performance measures. We conduct a real effort laboratory experiment and find that effort levels are invariant to changes in the distribution of the noise term, i.e. to expectancy. This suggests that enriching the economic (linear agency) model commonly applied within this area by including an expectancy parameter is not needed.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3064.
Length: 30 pages
Date of creation: Sep 2007
Date of revision:
Publication status: published in: Journal of Economic Behavior and Organization, 2008, 67 (3-4), 794 - 809
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Other versions of this item:
- Sloof, Randolph & van Praag, C. Mirjam, 2008. "Performance measurement, expectancy and agency theory: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 794-809, September.
- Randolph Sloof & Mirjam van Praag, 2007. "Performance Measurement, Expectancy and Agency Theory: An Experimental Study," Tinbergen Institute Discussion Papers 05-026/1, Tinbergen Institute, revised 22 Sep 2007.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-06 (All new papers)
- NEP-CBE-2007-10-06 (Cognitive & Behavioural Economics)
- NEP-EXP-2007-10-06 (Experimental Economics)
- NEP-ICT-2007-10-06 (Information & Communication Technologies)
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