Self-Chosen Goals: Incentives and Gender Differences (revision of 2015-021)

P.S. Dalton, V.H. Gonzalez Jimenez, Charles Noussair

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Abstract

To boost employees’ performance, firms often offer monetary bonuses when production goals are reached. However, the available evidence indicates that the particular level at which a goal is set is critical to the effectiveness of this practice. Goals must be challenging yet achievable. Computing optimal goals when employees have private information about their own abilities may be impossible for an employer. To solve this problem, we propose a compensation scheme, in which workers set their own production goals and bonuses. We provide a simple model of self-chosen goals and test its predictions in the
laboratory. The model predicts that (a) the self-chosen goal contract is more cost effective than a piece rate contract for an employer interested in attaining a desired level of output, and that (b) workers set goals that they systematically outperform. Our experimental data support both predictions. We also observe sharp gender differences in the experiment. The self-chosen goal contract increases the performance of men but not of women relative to a piece rate contract. Women set lower goals, but outperform them to a greater extent than men.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Number of pages30
Volume2016-036
Publication statusPublished - 7 Sep 2016

Publication series

NameCentER Discussion Paper
Volume2016-036

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Keywords

  • contracts
  • bonus
  • goal-dependant preferences
  • endogenous goals
  • productivity
  • gender differences

Cite this

Dalton, P. S., Gonzalez Jimenez, V. H., & Noussair, C. (2016). Self-Chosen Goals: Incentives and Gender Differences (revision of 2015-021). (CentER Discussion Paper; Vol. 2016-036). Tilburg: Economics.