Julia Nafziger

Self-Regulation Through Goal Setting

Goals are an important source of motivation. But little is known about why and how people set them. We address these questions in a model based on two stylized facts from psychology and behavioral economics: i) Goals serve as reference points for performance. ii) Present-biased preferences create self-control problems. We show how goals permit self-regulation, but also that they are painful self-disciplining devices. Greater self-control problems therefore lead to stronger self-regulation through goals only up to a certain point. For severely present-biased preferences, the required goal for self-regulation is too painful and the individual rather gives up.

Job Assignments Under Moral Hazard: The Peter Principle Revisited

We show that inefficient job assignments arise in organizations even if there is full information about employees’ types and complete contracts are possible. Our model also provides a new perspective on the Peter Principle: the output of an employee who is promoted into a job for which he is not well suited need not decline postpromotion, because he is pushed to exert more effort. Although promotions are desirable for most employees, they make the least able in a hierarchy level worse off: for them earnings increase only because they work harder to compensate for their “incompetence.”

Information management and incentives

We ask how the incentives of an agent are affected by an information management system that lets the agent receive information about the performance of a colleague before (“transparent firm”) rather than after he provides effort (“nontransparent firm”). Transparency is detrimental for incentives if the performance of the colleague provides information on the relative impact of the agent’s effort on his success probability. The findings imply that firms in which comparisons between employees play a minor role for compensation are transparent. Firms in which they play a major role sometimes choose to be nontransparent despite the flexibility gains transparency provides.

Motivational Job Assignments

This paper asks how a firm combines bonus payments with job assignments (through which it affects an employees self‐efficacy) to provide incentives. We show that the firm chooses an inefficient job assignment rule to enhance the employees self‐efficacy. The higher the employees self‐efficacy, the higher his work motivation and thus the lower the bonus the firm has to pay. Thus distortions in the job assignment lead to losses in production, but savings in the wage bill. This finding provides an explanation for why firms do not separate job assignments from the provision of incentives.