Self-Chosen Goals: Incentives and Gender Differences

CentER Discussion Paper Series No. 2016-036

30 Pages Posted: 25 Mar 2015 Last revised: 8 Sep 2016

See all articles by Patricio S. Dalton

Patricio S. Dalton

Tilburg University - Center for Economic Research (CentER)

Victor Gonzalez

Tilburg University - Center and Faculty of Economics and Business Administration

Charles N. Noussair

Tilburg University

Date Written: September 7, 2016

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.

Keywords: Contracts, Bonus, Goal-dependent preferences, Endogenous Goals, Productivity, Gender Differences

JEL Classification: C91, C92, J16, J24

Suggested Citation

Dalton, Patricio S. and Gonzalez, Victor and Noussair, Charles N., Self-Chosen Goals: Incentives and Gender Differences (September 7, 2016). CentER Discussion Paper Series No. 2016-036. Available at SSRN: https://ssrn.com/abstract=2583872 or http://dx.doi.org/10.2139/ssrn.2583872

Patricio S. Dalton (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Victor Gonzalez

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Charles N. Noussair

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

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