Performance Measurement, Expectancy and Agency Theory: An Experimental Study

Randolph Sloof and Mirjam Praag

No 3064, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Theoretical analyses of (optimal) performance measures are typically performed within the realm of the linear agency model. This model implies that, for a given compensation scheme, the agent’s optimal effort is unrelated to the amount of noise in the performance measure. In contrast, expectancy theory as developed by psychologists predicts lower effort levels for noisier performance measures. We conduct a real effort laboratory experiment and find that effort levels are invariant to changes in the distribution of the noise term, i.e. to expectancy. This suggests that enriching the economic (linear agency) model commonly applied within this area by including an expectancy parameter is not needed.

Keywords: performance measurement; expectancy theory; real effort experiments; agency theory; personnel economics (search for similar items in EconPapers)
JEL-codes: C91 J33 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2007-09
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-ict
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Citations: View citations in EconPapers (1)

Published - published in: Journal of Economic Behavior and Organization, 2008, 67 (3-4), 794 - 809

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Journal Article: Performance measurement, expectancy and agency theory: An experimental study (2008)
Working Paper: Performance Measurement, Expectancy and Agency Theory: An Experimental Study (2007)
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