Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2007-09-21 Revision-Date: 2007-09-22 Number: 05-026/1 Author-Name: Randolph Sloof Author-Email: r.sloof@uva.nl Author-Workplace-Name: Faculty of Economics and Econometrics, Universiteit van Amsterdam Author-Name: Mirjam van Praag Author-Email: c.m.vanpraag@uva.nl Author-Workplace-Name: Faculty of Economics and Econometrics, Universiteit van Amsterdam Title: Performance Measurement, Expectancy and Agency Theory: An Experimental Study 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.

This discussion paper has resulted in an article in the Journal of Economic Behavior & Organization, 67(3-4), 794-809. Classification-JEL: J33; C91; D81 Keywords: Expectancy theory; agency theory; performance measurement; experiments File-Url: https://papers.tinbergen.nl/05026.pdf File-Format: application/pdf File-Size: 406843 bytes Handle: RePEc:tin:wpaper:20050026