Please use this identifier to cite or link to this item:
Title: Performance targets, effort and risk-taking
Authors: Rablen, MD
Keywords: Performance targets;Intrinsic motivation;Prospect theory;Principal–agent theory;Reference-dependent preferences
Issue Date: 2010
Citation: Journal of Economic Psychology, 2010, 31 (4), pp. 687 - 697
Abstract: Growing economic and psychological evidence documents effects of target setting on levels of effort and risk-taking, even in the absence of a monetary reward for attaining the target. I explore a principal–agent environment in which the principal sets the agent a performance target, and the agent’s intrinsic motivation to work is influenced by their performance relative to the target. When the agent has prospect theory preferences relative to the target I show that a performance target can induce greater effort, but, when set too high, it eventually induces lower effort. Also, the agent’s preferences for risk-taking hinge on whether the target is set above or below expected output. I find that the principal’s optimal target exceeds expected output.
ISSN: 0167-4870
Appears in Collections:Dept of Economics and Finance Research Papers

Files in This Item:
File Description SizeFormat 
fulltext.pdf186.09 kBAdobe PDFView/Open

Items in BURA are protected by copyright, with all rights reserved, unless otherwise indicated.