IDEAS home Printed from https://ideas.repec.org/p/gat/wpaper/1628.html
   My bibliography  Save this paper

Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance

Author

Listed:
  • Brice Corgnet

    () (EMLYON Business School, Univ Lyon, GATE L-SE UMR 5824, F-69131 Ecully, France)

  • Joaquín Gómez-Miñambres

    () (Bucknell University, Department of Economics, One Dent Drive, Lewisburg, PA 17837. Chapman University, Economic Science Institute. One University Drive, Orange, California 92866)

  • Roberto Hernán-Gonzalez

    () (Nottingham University, Business School, Nottingham, UK)

Abstract

We study a principal-agent framework in which principals can assign wage-irrelevant goals to agents. We find evidence that, when given the possibility to set wage-irrelevant goals, principals select incentive contracts for which pay is less responsive to agents’ performance. We show that average performance of agents is higher in the presence of goal setting than in its absence despite weaker incentives. We develop a principal-agent model with reference-dependent utility that illustrates how labor contracts combining weak monetary incentives and wage-irrelevant goals can be optimal. It follows that recognizing the pervasive use of non-monetary incentives in the workplace may help account for previous empirical findings suggesting that firms rely on unexpectedly weak monetary incentives.

Suggested Citation

  • Brice Corgnet & Joaquín Gómez-Miñambres & Roberto Hernán-Gonzalez, 2016. "Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance," Working Papers 1628, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
  • Handle: RePEc:gat:wpaper:1628
    as

    Download full text from publisher

    File URL: ftp://ftp.gate.cnrs.fr/RePEc/2016/1628.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Antonio Cabrales & Raffaele Miniaci & Marco Piovesan & Giovanni Ponti, 2010. "Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts," American Economic Review, American Economic Association, vol. 100(5), pages 2261-2278, December.
    2. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, November.
    3. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 437-459.
    4. Brice Corgnet & Roberto Hernán-González & Eric Schniter, 2015. "Why real leisure really matters: incentive effects on real effort in the laboratory," Experimental Economics, Springer;Economic Science Association, vol. 18(2), pages 284-301, June.
    5. Fabian Herweg & Daniel Muller & Philipp Weinschenk, 2010. "Binary Payment Schemes: Moral Hazard and Loss Aversion," American Economic Review, American Economic Association, vol. 100(5), pages 2451-2477, December.
    6. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
    7. Muriel Niederle & Lise Vesterlund, 2007. "Do Women Shy Away From Competition? Do Men Compete Too Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1067-1101.
    8. Vital Anderhub & Simon Gächter & Manfred Königstein, 2002. "Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment," Experimental Economics, Springer;Economic Science Association, vol. 5(1), pages 5-27, June.
    9. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    10. 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.
    11. Michael Kosfeld & Susanne Neckermann, 2011. "Getting More Work for Nothing? Symbolic Awards and Worker Performance," American Economic Journal: Microeconomics, American Economic Association, vol. 3(3), pages 86-99, August.
    12. Dalton, P.S. & Gonzalez Jimenez, V.H. & Noussair, C.N., 2015. "Paying with Self-Chosen Goals : Incentives and Gender Differences," Discussion Paper 2015-021, Tilburg University, Center for Economic Research.
    13. Brice Corgnet & Roberto Hernán-González, 2015. "Revisiting the Tradeoff between Risk and Incentives: The Shocking Effect of Random Shocks," Working Papers 15-05, Chapman University, Economic Science Institute.
    14. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 15(5), pages 589-611, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alexander K. Koch & Julia Nafziger, 2017. "Motivational Goal Bracketing: An Experiment," Economics Working Papers 2017-06, Department of Economics and Business Economics, Aarhus University.
    2. Max van Lent & Michiel Souverijn, 2017. "Goal Setting and Raising the Bar: A Field Experiment," Tinbergen Institute Discussion Papers 17-001/VII, Tinbergen Institute.
    3. Jordi Brandts & Brice Corgnet & Roberto Hernán-González & José M. Ortiz & Carles Solà, 2018. "A ‘threat’ is a ‘Threat’: Incentive Effects of Firing Threats with Varying Degrees of Performance Information," Working Papers 1023, Barcelona Graduate School of Economics.

    More about this item

    Keywords

    Principal-agent models; incentive theory; non-monetary incentives; goal setting; reference-dependent utility; laboratory experiments;

    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 - - Personnel Economics - - - Labor Management

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gat:wpaper:1628. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nelly Wirth). General contact details of provider: http://edirc.repec.org/data/gateefr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.