The effects of hurdle rates on the level of escalation of commitment in capital budgeting.

ABSTRACT

This close attention proposes that organizations should consider throw hurdle rates, as part of their direction system design, to reduce escalation of commitment behavior in managers. In particular, we empirically examined the escalation of commitment tendencies in managers receiving organization-set, self-set and no hurdle rates.

Consistent with prior expectations, we set self-set hurdle rates to be an effective superintendence mechanism resulting in significantly lower horizontals of escalation of commitment. Contrary to expectations, however, organization-set hurdle rates were not