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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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Bibliographic Info

Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 122247000000001525.

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Date of creation: 07 Sep 2007
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Handle: RePEc:cla:levarc:122247000000001525

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References

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  1. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, Econometric Society, vol. 59(3), pages 611-36, May.
  2. repec:rje:randje:v:37:y:2006:2:p:376-390 is not listed on IDEAS
  3. Sandeep Baliga & Tomas Sjostrom, 1996. "Decentralization and Collusion," Harvard Institute of Economic Research Working Papers 1757, Harvard - Institute of Economic Research.
  4. Uri Gneezy & Aldo Rustichini, 2000. "Pay Enough Or Don'T Pay At All," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(3), pages 791-810, August.
  5. Eyal Winter, 2006. "Optimal incentives for sequential production processes," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 376-390, 06.
  6. Eyal Winter, 2003. "Incentives and Discrimination," Discussion Paper Series dp313, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  7. Fischbacher, Urs & Gachter, Simon & Fehr, Ernst, 2001. "Are people conditionally cooperative? Evidence from a public goods experiment," Economics Letters, Elsevier, vol. 71(3), pages 397-404, June.
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Cited by:
  1. Roi Zultan & Eva-Maria Steiger, 2011. "See No Evil: Information Chains and Reciprocity in Teams," Working Papers 1108, Ben-Gurion University of the Negev, Department of Economics.
  2. 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.
  3. Bag, Parimal Kanti & Pepito, Nona, 2011. "Double-edged transparency in teams," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 531-542, August.
  4. Klor, Esteban F. & Kube, Sebastian & Winter, Eyal & Zultan, Ro’i, 2014. "Can higher rewards lead to less effort? Incentive reversal in teams," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 72-83.
  5. Klor, Esteban F. & Kube, Sebastian & Winter, Eyal & Zultan, Ro'i, 2011. "Can Higher Bonuses Lead to Less Effort? Incentive Reversal in Teams," IZA Discussion Papers 5501, Institute for the Study of Labor (IZA).
  6. 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.
  7. 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.

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