Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86612
Authors: 
Sloof, Randolph
van Praag, Mirjam
Year of Publication: 
2007
Series/Report no.: 
Tinbergen Institute Discussion Paper 05-026/1
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.
Subjects: 
Expectancy theory
agency theory
performance measurement
experiments
JEL: 
J33
C91
D81
Document Type: 
Working Paper

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