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Shirking and “choking” under incentive-based pressure: A behavioral economic theory of performance production

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  • Sanders, Shane
  • Walia, Bhavneet

Abstract

Significant empirical evidence exists within psychology and economics that greater incentives under pressure can lead to lower performance outcomes. However, standard economic theory does not account for this possibility. Efficiency wage models, for example, conclude a positive relationship between wage incentives and productivity. While efficiency wage models are shown to describe productivity behavior in numerous settings, said models do not describe labor markets featuring (counterproductive) performance pressure. We put forth a theoretical model of performance production in which performance incentives induce productive effects and counterproductive effects. The model treats explicit monitoring and distraction as distinct, counterproductive processes within a cohesive theory of performance production. In settings featuring performance pressure, we find that higher levels of performance-contingent compensation may decrease not only labor output (i.e., likelihood of task success) but also labor input (i.e., effort) if counterproductive processes decrease the marginal effectiveness of effort sufficiently. The latter finding challenges a common view that performance decrements under pressure occur despite greater effort levels.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 116 (2012)
Issue (Month): 3 ()
Pages: 363-366

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Handle: RePEc:eee:ecolet:v:116:y:2012:i:3:p:363-366

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Performance incentives; Choking under pressure; Shirking under pressure;

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References

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  1. Dohmen, Thomas, 2005. "Do Professionals Choke Under Pressure?," IZA Discussion Papers 1905, Institute for the Study of Labor (IZA).
  2. Zheng Cao & Joseph Price & Daniel F. Stone, 2011. "Performance Under Pressure in the NBA," Journal of Sports Economics, , vol. 12(3), pages 231-252, June.
  3. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
  4. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290 National Bureau of Economic Research, Inc.
  5. Dan Ariely & Uri Gneezy & George Loewenstein & Nina Mazar, 2009. "Large Stakes and Big Mistakes," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 451-469.
  6. Akerlof, George A, 1984. "Gift Exchange and Efficiency-Wage Theory: Four Views," American Economic Review, American Economic Association, vol. 74(2), pages 79-83, May.
  7. Stiglitz, Joseph E, 1976. "The Efficiency Wage Hypothesis, Surplus Labour, and the Distribution of Income in L.D.C.s," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 185-207, July.
  8. Malcomson, James M, 1981. "Unemployment and the Efficiency Wage Hypothesis," Economic Journal, Royal Economic Society, vol. 91(364), pages 848-66, December.
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