Document Type
Article
Publication Date
3-23-2018
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.
Recommended Citation
Corgnet, B., Gómez-Miñambres, J., & Hernán-González, R. (2018). Goal setting in the principal-agent model: Weak incentives for strong performance. Games and Economic Behavior, 109, 311-326. doi: 10.1016/j.geb.2017.12.017
Peer Reviewed
1
Copyright
Elsevier
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Comments
NOTICE: this is the author’s version of a work that was accepted for publication in Games and Economic Behavior. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Games and Economic Behavior, volume 109, in 2018. DOI: 10.1016/j.geb.2017.12.017
The Creative Commons license below applies only to this version of the article.