On the Relative Efficiency of Performance Pay and Social Incentives
AbstractIn contrast to the simplifying assumption of selfishness, social incentives have been shown to play a role in economic interactions. Before incorporating social incentives into models and policies, however, one needs to know their efficiency relative to standard pay-for-performance incentives. We report evidence from a large field experiment comparing the effectiveness of contingent and non-contingent (social) incentives in eliciting costly effort. The company with which we worked sent 7,250 letters asking customers to complete a survey. Some letters contained cash amounts ranging from $1 to $30, whereas others promised to pay upon compliance. We compare the response rates and cost effectiveness of these contingent and social incentives with each other and with a no-incentives control. In line with previous findings, we find that social incentives generated some effort: small amounts increased the response rate with respect to the control, but the size of the reward had a relatively minor effect. In contrast, the response rate for contingent incentives was low for small amounts but increased rapidly as incentives increased. Importantly, for (almost) any given response rate social incentives were more costly than contingent incentives.
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Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 585.
Date of creation: Oct 2011
Date of revision:
contingent incentives; gift exchange;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-15 (All new papers)
- NEP-CBE-2012-05-15 (Cognitive & Behavioural Economics)
- NEP-EXP-2012-05-15 (Experimental Economics)
- NEP-HRM-2012-05-15 (Human Capital & Human Resource Management)
- NEP-LAB-2012-05-15 (Labour Economics)
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