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Incentives and Ratcheting in a Multiproduct Firm: A Field Experiment

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  • Francisco Brahm

    (Judge Business School, University of Cambridge, Cambridge CB2 1AG, United Kingdom; School of Management, Pontificia Universidad Católica de Chile, Macul, Santiago 7820436, Chile)

  • Joaquin Poblete

    (School of Management, Pontificia Universidad Católica de Chile, Macul, Santiago 7820436, Chile)

Abstract

We develop a model and derive behavioral predictions for a multiproduct sales force subject to goals set based on past performance. We test these predictions using a field experiment in which 53 salespersons from a Chilean beverage company face exogenous variations in monthly sales goals. Confirming our predictions, we found that (1) absent strategic considerations—no goal ratcheting—salespersons increase (decrease) sales in the product category for which the return to effort increases (decreases), (2) including strategic considerations behavior reverses: salespersons who expect high goal ratcheting decrease (increase) sales in the category for which the return to effort increases (decreases), (3) sales did not change for the average salespersons, reflecting heterogeneity in the expectations of goal ratcheting rather than unresponsiveness to incentives. Our study points at the importance of the dynamics of incentive design, in particular, the importance of understanding the dynamics of goal setting in firms.

Suggested Citation

  • Francisco Brahm & Joaquin Poblete, 2018. "Incentives and Ratcheting in a Multiproduct Firm: A Field Experiment," Management Science, INFORMS, vol. 64(10), pages 4552-4571, October.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:10:p:4552-4571
    DOI: 10.287/mnsc.2017.2861
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    References listed on IDEAS

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    3. Abeler, Johannes & Huffman, David B. & Raymond, Collin, 2023. "Incentive Complexity, Bounded Rationality and Effort Provision," IZA Discussion Papers 16284, Institute of Labor Economics (IZA).
    4. Ramírez, Vicente & Galilea, Patricia & Poblete, Joaquín & Silva, Hugo E., 2022. "Team-based incentives in transportation firms: An experiment," Transportation Research Part A: Policy and Practice, Elsevier, vol. 164(C), pages 1-12.
    5. Zuomiao Xie & Shiqi Yuan & Jinjing Zhu & Alistair Palferman, 2023. "Dynamic value sharing based on employee contribution as a competitiveness-enhancing device," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-13, December.

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