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Goals (th)at Work – Goals, Monetary Incentives, and Workers’ Performance

  • Sebastian Goerg

    ()

    (Florida State University, Department of Economics)

  • Sebastian Kube

    ()

    (University of Bonn, Department of Economics)

In a randomized field experiment, we investigate the connection between work goals, monetary incentives, and work performance. Employees are observed in a natural work environment where they have to do a simple, but effort-intense task. Output is perfectly observable and workers are paid for performance. While a regular piece-rate contract serves as a benchmark, in some treatments workers are paid a bonus conditional on reaching a pre-specified goal. We observe that the use of personal work goals leads to a significant output increase. The positive effect of goals not only prevails if they are self-chosen by the workers, but also if goals are set exogenously by the principal – although in the latter case, the exact size of the goal plays a crucial role. Strikingly, the positive effect of self-chosen goals persists even if the goal is not backed up by monetary incentives. We propose a novel incentive contract where – through the choice of a personal work goal – workers themselves determine the risk and the size of their bonus payment at the same time.

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Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2012_19.

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Date of creation: Oct 2012
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Handle: RePEc:mpg:wpaper:2012_19
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  1. Sebastian Kube & Michel André Maréchal & Clemens Puppe, 2010. "The currency of reciprocity - gift-exchange in the workplace," IEW - Working Papers 377, Institute for Empirical Research in Economics - University of Zurich, revised Aug 2011.
  2. Botond Koszegi & Matthew Rabin, 2004. "A Model of Reference-Dependent Preferences," Method and Hist of Econ Thought 0407001, EconWPA.
  3. Armin Falk & Markus Knell, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 417-435, October.
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  6. Koch, Alexander K. & Nafziger, Julia, 2008. "Self-Regulation through Goal Setting," IZA Discussion Papers 3893, Institute for the Study of Labor (IZA).
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  8. Mathilde Almlund & Angela Lee Duckworth & James J. Heckman & Tim D. Kautz, 2011. "Personality Psychology and Economics," NBER Working Papers 16822, National Bureau of Economic Research, Inc.
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  11. Abeler, Johannes & Falk, Armin & Götte, Lorenz & Huffman, David, 2009. "Reference Points and Effort Provision," CEPR Discussion Papers 7221, C.E.P.R. Discussion Papers.
  12. Ian Larkin & Stephen Leider, 2012. "Incentive Schemes, Sorting, and Behavioral Biases of Employees: Experimental Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 184-214, May.
  13. John List & Uri Gneezy, 2006. "Putting behavioral economics to work: Testing for gift exchange in labor markets using field experiments," Natural Field Experiments 00259, The Field Experiments Website.
  14. Supreet Kaur & Michael Kremer & Sendhil Mullainathan, 2010. "Self-Control and the Development of Work Arrangements," American Economic Review, American Economic Association, vol. 100(2), pages 624-28, May.
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  16. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
  17. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
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  19. Bandiera, Oriana & Barankay, Iwan & Rasul, Imran, 2009. "Social Incentives in the Workplace," IZA Discussion Papers 4190, Institute for the Study of Labor (IZA).
  20. Murphy, Kevin J., 2000. "Performance standards in incentive contracts," Journal of Accounting and Economics, Elsevier, vol. 30(3), pages 245-278, December.
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