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

Brice Corgnet, Joaquín Gómez-Miñambres () and Roberto Hernán-Gonzalez ()
Additional contact information
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

No 1628, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

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.

Keywords: Principal-agent models; incentive theory; non-monetary incentives; goal setting; reference-dependent utility; laboratory experiments (search for similar items in EconPapers)
JEL-codes: C92 D23 M54 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-lma, nep-sog and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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ftp://ftp.gate.cnrs.fr/RePEc/2016/1628.pdf (application/pdf)

Related works:
Journal Article: Goal setting in the principal–agent model: Weak incentives for strong performance (2018)
Working Paper: Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance (2018)
Working Paper: Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance (2016)
Working Paper: Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance (2016)
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