Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/163010
Authors: 
Corgnet, Brice
Gómez-Miñambres, Joaquín
Hernán-González, Roberto
Year of Publication: 
2016
Series/Report no.: 
CeDEx Discussion Paper Series 2016-09
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.
Subjects: 
principal-agent models
incentive theory
non-monetary incentives
goal setting
reference-dependent utility
laboratory experiments
JEL: 
C92
D23
M54
Document Type: 
Working Paper

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