Advanced Search
MyIDEAS: Login to save this article or follow this journal

Adding a Stick to the Carrot? The Interaction of Bonuses and Fines

Contents:

Author Info

  • Ernst Fehr
  • Klaus M. Schmidt

Abstract

In this paper we report on a principal-agent experiment where the principal can choose whether to rely on an unenforcable bonus contract or to combine the bonus contract with a fine if the agent’s effort falls below a minimum standard. We show that most principals do not use the fine and that the pure bonus contract is more efficient than the combined contract. Our experiment suggests that principals who are less fair are more likely to choose a combined contract and less likely to actually pay the announced bonus. This offers a new explanation for why explicit and implicit incentives are substitutes rather than complements.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.97.2.177
Download Restriction: no

File URL: http://www.aeaweb.org/aer/data/may07/p07040_data.zip
Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 2 (May)
Pages: 177-181

as in new window
Handle: RePEc:aea:aecrev:v:97:y:2007:i:2:p:177-181

Note: DOI: 10.1257/aer.97.2.177
Contact details of provider:
Email:
Web page: https://www.aeaweb.org/aer/
More information through EDIRC

Order Information:
Web: https://www.aeaweb.org/subscribe.html

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Ernst Fehr & Klaus M. Schmidt, . "Fairness and Incentives in a Multi-Task Principal-Agent Model," IEW - Working Papers 191, Institute for Empirical Research in Economics - University of Zurich.
  2. Ernst Fehr & John List, 2004. "The hidden costs and returns of incentives - trust and trustworthiness among ceos," Artefactual Field Experiments 00044, The Field Experiments Website.
  3. Roland Bénabou & Jean Tirole, 2004. "Incentives and Prosocial Behavior," Working Papers 137, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  4. Gneezy, U. & Rustichini, A., 1998. "Pay Enough - Or Don't Pay at All," Discussion Paper, Tilburg University, Center for Economic Research 1998-57, Tilburg University, Center for Economic Research.
  5. Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2005. "Fairness and Contract Design," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 67, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Dirk Sliwka, 2007. "Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes," American Economic Review, American Economic Association, American Economic Association, vol. 97(3), pages 999-1012, June.
  7. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, American Economic Association, vol. 96(5), pages 1611-1630, December.
  8. Ernst Fehr & Bettina Rockenbach, 2003. "Detrimental effects of sanctions on human altruism," Microeconomics, EconWPA 0305007, EconWPA.
  9. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 15(5), pages 589-611, December.
  10. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
  11. Uri Gneezy & Aldo Rustichini, 2000. "A fine is a price," Natural Field Experiments 00258, The Field Experiments Website.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Herold, Florian, 2010. "Contractual incompleteness as a signal of trust," Games and Economic Behavior, Elsevier, vol. 68(1), pages 180-191, January.
  2. Antoni Cunyat & Randolph Sloof, 2009. "Employee types and endofenous organizational design: An experiment," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2009-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Oosterbeek, Hessel & Sloof, Randolph & Sonnemans, Joep, 2011. "Rent-seeking versus productive activities in a multi-task experiment," European Economic Review, Elsevier, vol. 55(5), pages 630-643, June.
  4. Sääksvuori, Lauri, 2013. "Voluntary formation of centralized sanctioning institutions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 44(C), pages 150-159.
  5. Flynn, Sean Masaki & Donnelly, Michael, 2012. "Does labor contract completeness drive unionization? Experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 41(4), pages 445-454.
  6. Tetlock, Philip E. & Vieider, Ferdinand M. & Patil, Shefali V. & Grant, Adam M., 2013. "Accountability and ideology: When left looks right and right looks left," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 122(1), pages 22-35.
  7. Maria Bigoni & Giancarlo Spagnolo & Paola Valbonesi, 2010. "Sticks and Carrots in Procurement," CEIS Research Paper 157, Tor Vergata University, CEIS, revised 28 May 2010.
  8. Golman, Russell & Bhatia, Sudeep, 2012. "Performance evaluation inflation and compression," Accounting, Organizations and Society, Elsevier, vol. 37(8), pages 534-543.
  9. Daniel Houser & Erte Xiao & Kevin McCabe & Vernon Smith, 2005. "When punishment fails: Research on sanctions, intentions and non- cooperation," Experimental, EconWPA 0503001, EconWPA.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:97:y:2007:i:2:p:177-181. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.