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Incentive Reversal

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  • Eyal Winter

Abstract

By incentive reversal we refer to situations in which an increase in rewards for all agents results in fewer agents exerting effort. We show that externalities among peers may give rise to such intriguing situations even when all agents are fully rational. We provide a necessary and sufficient condition for the organizational technology so that it will be susceptible to incentive reversal. The condition implies that some degree of complementarity is enough to allow incentive reversal. (JEL D23, D82, M54)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.1.2.133
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 1 (2009)
Issue (Month): 2 (August)
Pages: 133-47

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Handle: RePEc:aea:aejmic:v:1:y:2009:i:2:p:133-47

Note: DOI: 10.1257/mic.1.2.133
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References

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  1. Sandeep Baliga & Tomas Sjostrom, 1998. "Decentralization and Collusion," Discussion Papers 1210, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Eyal Winter, 2006. "Optimal incentives for sequential production processes," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 376-390, 06.
  3. Urs Fischbacher & Simon Gaechter & Ernst Fehr, . "Are People Conditionally Cooperative? Evidence from a Public Goods Experiment," IEW - Working Papers 016, Institute for Empirical Research in Economics - University of Zurich.
  4. repec:rje:randje:v:37:y:2006:2:p:376-390 is not listed on IDEAS
  5. Eyal Winter, 2003. "Incentives and Discrimination," Discussion Paper Series dp313, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  6. Uri Gneezy & Aldo Rustichini, 2000. "Pay Enough Or Don'T Pay At All," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 791-810, August.
  7. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-36, May.
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Citations

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Cited by:
  1. Steiger, Eva-Maria & Zultan, Ro'i, 2014. "See no evil: Information chains and reciprocity," Journal of Public Economics, Elsevier, vol. 109(C), pages 1-12.
  2. Eva-Maria Steiger & Ro'i Zultan, 2011. "See No Evil: Information Chains and Reciprocity in Teams," Jena Economic Research Papers 2011-040, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Sven Fischer & Eva-Maria Steiger, 2009. "Exploring the Effects of Unequal and Secretive Pay," Jena Economic Research Papers 2009-107, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  4. Bag, Parimal Kanti & Pepito, Nona, 2011. "Double-edged transparency in teams," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 531-542, August.
  5. Esteban Klor & Sebastian Kube & Eyal Winter & Ro'i Zultan, 2013. "Can Higher Rewards Lead To Less Effort? Incentive Reversal In Teams," Working Papers 1309, Ben-Gurion University of the Negev, Department of Economics.
  6. Eyal Winter & Ignacio Garcia-Jurado & Jose Mendez-Naya & Luciano Mendez-Naya, 2009. "Mental Equilibrium and Rational Emotions," Discussion Paper Series dp521, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  7. Esteban F. Klor & Sebastian Kube & Eyal Winter & Ro'i Zultan, 2011. "Can Higher Bonuses Lead to Less E ort? Incentive Reversal in Teams," Levine's Working Paper Archive 786969000000000073, David K. Levine.

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