Performance targets, effort and risk-taking

Matthew Rablen

Journal of Economic Psychology, 2010, vol. 31, issue 4, 687-697

Abstract: Growing economic and psychological evidence documents effects of target setting on levels of effort and risk-taking, even in the absence of a monetary reward for attaining the target. I explore a principal-agent environment in which the principal sets the agent a performance target, and the agent's intrinsic motivation to work is influenced by their performance relative to the target. When the agent has prospect theory preferences relative to the target I show that a performance target can induce greater effort, but, when set too high, it eventually induces lower effort. Also, the agent's preferences for risk-taking hinge on whether the target is set above or below expected output. I find that the principal's optimal target exceeds expected output.

Keywords: Performance; targets; Intrinsic; motivation; Prospect; theory; Principal-agent; theory; Reference-dependent; preferences (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:31:y:2010:i:4:p:687-697

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