Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance - HAL-SHS - Sciences de l'Homme et de la Société Access content directly
Preprints, Working Papers, ... Year : 2016

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

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. We show that average performance of agents is higher in the presence of goal setting than in its absence 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. It follows that recognizing 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.
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Dates and versions

halshs-01364444 , version 1 (12-09-2016)

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  • HAL Id : halshs-01364444 , version 1

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Brice Corgnet, Joaquín Gómez-Miñambres, Roberto Hernán-Gonzalez. Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance. 2016. ⟨halshs-01364444⟩
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