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Motivation through goal setting

  • Gómez-Miñambres, Joaquín
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    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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    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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    1. 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).
    2. Drakopoulos, Stavros A., 2005. "The paradox of Happiness: towards an alternative explanation," MPRA Paper 6870, University Library of Munich, Germany.
    3. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
    4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    5. Astrid Matthey, 2010. "The Influence of Priming on Reference States," Games, MDPI, Open Access Journal, vol. 1(1), pages 34-52, March.
    6. Koch, Alexander K. & Nafziger, Julia, 2008. "Self-Regulation through Goal Setting," IZA Discussion Papers 3893, Institute for the Study of Labor (IZA).
    7. Koch, Alexander K. & Nafziger, Julia, 2011. "Goals and Psychological Accounting," IZA Discussion Papers 5802, Institute for the Study of Labor (IZA).
    8. 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.
    9. Paul Fischer & Steven Huddart, 2008. "Optimal Contracting with Endogenous Social Norms," American Economic Review, American Economic Association, vol. 98(4), pages 1459-75, September.
    10. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
    11. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 15(5), pages 589-611, December.
    12. repec:oup:qjecon:v:121:y:2006:i:4:p:1133-1165 is not listed on IDEAS
    13. Phelps, Charlotte D., 2001. "A clue to the paradox of happiness," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 293-300, July.
    14. Drakopoulos, S. A. & Theodossiou, I., 1997. "Job satisfaction and target earnings," Journal of Economic Psychology, Elsevier, vol. 18(6), pages 693-704, November.
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