Performance Measurement, Expectancy and Agency Theory: An Experimental Study

Randolph Sloof and Mirjam Praag

No 05-026/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

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. This suggests that enriching the economic model commonly applied within this area by including an expectancy parameter is not needed.

This discussion paper has resulted in an article in the Journal of Economic Behavior & Organization , 67(3-4), 794-809.

Keywords: Expectancy theory; agency theory; performance measurement; experiments (search for similar items in EconPapers)
JEL-codes: C91 D81 J33 (search for similar items in EconPapers)
Date: 2007-09-21, Revised 2007-09-22
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20050026

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