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Relative and Absolute Incentives: Evidence on Worker Productivity

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Author Info
Bandiera, Oriana
Barankay, Iwan
Rasul, Imran

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Abstract

We use personnel data to compare worker productivity under a relative incentive scheme, where worker pay is negatively related to the average productivity of co-workers, with productivity under piece rates – where pay is based on individual productivity alone. We find that for the average worker, productivity is at least 50% higher under piece rates. We show this is because workers partially internalize the negative externality they impose on others under the relative incentive scheme and do so to a greater extent when they work alongside their close friends. The results illustrate the importance of understanding how workers behave in the presence of externalities when designing incentive schemes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4431.

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Date of creation: Jun 2004
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Handle: RePEc:cpr:ceprdp:4431

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Related research
Keywords: absolute incentives; relative incentives; social preferences;

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Find related papers by JEL classification:
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pedro Rey Biel & Steffen Huck, 2005. "Endogenous Leadership in Teams," Microeconomics 0506004, EconWPA. [Downloadable!]
    Other versions:
  2. Orana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," Natural Field Experiments 0014, The Field Experiments Website. [Downloadable!]
    Other versions:
  3. Pedro Rey Biel, 2005. "Equilibrium Play and Best Response in Sequential Constant Sum Games," Experimental 0506004, EconWPA. [Downloadable!]
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