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Relative and Absolute Incentives: Evidence on Worker Productivity

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  • Bandiera, Oriana
  • Barankay, Iwan
  • Rasul, Imran

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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Bibliographic Info

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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Keywords: absolute incentives; relative incentives; social preferences;

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References

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Citations

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Cited by:
  1. Pedro Rey Biel, 2005. "Equilibrium Play and Best Response in Sequential Constant Sum Games," Experimental 0506004, EconWPA.
  2. Pedro Rey Biel & Steffen Huck, 2005. "Endogenous Leadership in Teams," Microeconomics 0506004, EconWPA.
  3. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 917-962, August.
  4. Martin, Pardupa, 2007. "Cooperation or rivalry? Employee’s effort and appropriate knowledge distribution as key elements for maximizing the profit of the firm," MPRA Paper 26428, University Library of Munich, Germany.

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