Performance targets, effort and risk-taking

Rablen, Matthew D.

doi:10.1016/j.joep.2010.05.002

Cited by 11 publications

(3 citation statements)

References 74 publications

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“…Innovation prizes (often referred to as ‘inducement prizes’) are a special type of award that seeks to promote new ways of overcoming economic and social problems. A monetary sum is offered to that person or group of persons finding a solution to a well‐specified problem (on the motivational effects of nonmonetary targets, see Rablen, ). It has been empirically shown that the winners of science problem‐solving contests are often people whose field of technical expertise is distant from the field in which the problem originated (Jeppesen and Lakhani, ).…”

Section: Types Of Awardsmentioning

confidence: 99%

Towards an Economics of Awards

Frey

Gallus

2015

Journal of Economic Surveys

103

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Awards are a widespread phenomenon. They cater to the fundamental desire for social recognition and serve as a valuable incentive to influence behaviour. The study of awards such as medals, prizes and titles has in recent years gained momentum in economics, complementing the longstanding focus on material incentives. To evaluate the effectiveness of awards as a motivator is difficult as the effect of awards must be separated from the fact that awards are meant to be given to the best. We show how research on awards has advanced over the last couple of years, thus providing points of departure for future work.There are an enormous number of awards adorning people's chests and organizations' entry halls. They range from orders and crosses bequeathed by heads of state, to decorations handed out by the military, and to many different other prizes and titles bequeathed by all sorts of organizations in the for-profit and nonprofit sectors. It would be difficult to find an area of society in which awards are not employed. State orders and decorationsAll countries around the world (with the exception of Switzerland) know the institution of official awards in the form of state orders and crosses

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Section: Types Of Awardsmentioning

confidence: 99%

Towards an Economics of Awards

Frey

Gallus

2015

Journal of Economic Surveys

103

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“…The deflated performance manipulation behavior can help the private sector use the unreported surplus performance to smooth performance in the next period, so as to guarantee seemly performance growth. Rablen (2010) employed goal-setting theory to explain why agents tend to take the risk to attain a high target. It was reported that agent would reduce their real performance in various ways, for example, reducing investments (Eldenburg et al, 2011), allowing for price discounts (Roychowdhury, 2006), because deflated performance manipulation is concealed and is challenging to be detected (Bouwens & Kroos, 2011).…”

Section: Ratchet Effectmentioning

confidence: 99%

Incentive Mechanism for Performance-Based Payment of Infrastructure PPP Projects: Coupling of Reputation and Ratchet Effects

Zuo

et al. 2022

International Journal of Strategic Property Management

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The performance-based payment PPP model has been widely used in the infrastructure projects. However, the ratchet effect derived from performance-based reputation incentives has been largely overlooked. To overcome this shortcoming, ratchet effect is considered in the performance-based payment incentive process. A multi-period dynamic incentive mechanism is developed by coupling the reputation and ratchet effect. The main results show that: (1) Under the coupling of reputation and ratchet effects, the optimal incentive coefficient in the last performance assessment period is always greater than that of the first period. The bargaining power can replace part of the incentive effect; (2) Due to the ratchet effect, if the government improve performance targets through performance adjustment coefficients, it needs to increase incentives to overcome the decreasing effort of the private sector; (3) When the bargaining power and punishment coefficient are small, the reputation incentive is replacing the explicit incentive. The increasing incentive coefficient would make the ratchet effect dominant the reputation effect; (4) To prevent the incentive incompatibility derived from the ratchet effect, the government should increase the incentive while increasing the punishment to achieve the “penalties and rewards”. This study provides theoretical and methodological guidance to design incentive contracts for infrastructure PPP projects.

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“…It is because the latter can help store managers use the unreported surplus performance to smooth performance in the next period, for example, earnings management [1,[19][20][21], so as to guarantee seemly performance growth. Goal-setting theory provides evidence to explain the reason that managers tend to take risk to attain a high target [22]. Leone and Rock [23] suggested that managers are promoted to manipulate reported earnings downward by accruals.…”

Section: Literature Reviewmentioning

confidence: 99%

Incentive Mechanism Design Aiming at Deflated Performance Manipulation in Retail Firms: Based on the Ratchet Effect and the Reputation Effect

Luo¹,

Wang²,

Li³

2016

Mathematical Problems in Engineering

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Store managers in retail firms are often offered a performance-based compensation scheme accompanied with a performance target by the headquarters. The headquarters adjusts the performance target based on store managers’ historical performance and therefore generates the ratchet effect. Consequently, store managers may downward manipulate performance, that is, deflated performance manipulation, so as to weasel out of target growth and smooth performance growth. However, the reputation effect that seeks fame by store managers can restrain deflated performance manipulation. We model a dynamic agency setting in which both the ratchet effect and the reputation effect are related to the store manager’s compensation scheme, and the store manager has to balance her effort and deflated performance manipulation. Our findings reveal that the ratchet effect and environmental volatility jointly determine the existence of deflated performance manipulation, yet the reputation effect can restrain it with increasing environmental volatility. In addition, deflated performance manipulation is inevitable when environmental volatility is large enough, and explicit incentives may promote deflated performance manipulation.

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Performance targets, effort and risk-taking

Cited by 11 publications

References 74 publications

Towards an Economics of Awards

Towards an Economics of Awards

Incentive Mechanism for Performance-Based Payment of Infrastructure PPP Projects: Coupling of Reputation and Ratchet Effects

Incentive Mechanism Design Aiming at Deflated Performance Manipulation in Retail Firms: Based on the Ratchet Effect and the Reputation Effect

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