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

Brice Corgnet, Joaquin Gomez-Minambres and Roberto Hernan-Gonzalez ()
Additional contact information
Roberto Hernan-Gonzalez: Business School, University of Nottingham
Authors registered in the RePEc Author Service: Roberto Hernán González

No 2016-09, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

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)
Date: 2016-09
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-lma and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.nottingham.ac.uk/cedex/documents/paper ... on-paper-2016-09.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)
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:not:notcdx:2016-09

Access Statistics for this paper

More papers in Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham School of Economics University of Nottingham University Park Nottingham NG7 2RD. Contact information at EDIRC.
Bibliographic data for series maintained by Jose V Guinot Saporta ().