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

Brice Corgnet, Joaquin Gomez-Minambres and Roberto Hernán-González
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
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825618300034
Full text for ScienceDirect subscribers only

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)
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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:109:y:2018:i:c:p:311-326

DOI: 10.1016/j.geb.2017.12.017

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().