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Goal setting in the principal–agent model: Weak incentives for strong performance

Brice Corgnet (), Joaquin Gomez-Minambres and Hernán-González, Roberto
Authors registered in the RePEc Author Service: Roberto Hernán González ()

Games and Economic Behavior, 2018, vol. 109, issue C, 311-326

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. Agents' performance is higher in the presence of goal setting 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. 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: 2018
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Related works:
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) Downloads
Working Paper: Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance (2016) Downloads
Working Paper: Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance (2016) Downloads
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