Performance Target Levels and Effort: Reciprocity across Single- and Repeated-Interaction Settings

ABSTRACT: We examine how reciprocity affects the relation between performance target levels and effort across single- and repeated-interaction settings. Using a laboratory experiment where participants make choices from a payoff matrix representing target and effort levels, we model a setting where employee-participants have economic incentives to respond to higher target assignments by superior-participants with higher effort. However, reciprocity could lead employees to reward low target assignments with high effort and punish high target assignments with low effort. In a single-interaction setting where only innate preferences can drive reciprocal behavior, we find that superiors select higher targets and that employees generally respond with higher effort. In a repeated-interaction setting where reciprocal behavior can emerge for strategic reasons, we find that superiors set lower targets and that employees generally respond to low targets with high effort and to high targets with low effort. Collecti...