Performance and Relative Incentive Pay: The Role of Social Preferences
AbstractUnder relative performance pay, other-regarding workers internalize the negative externality they impose on other workers. In one form -increased own effort reduces others' payoffs- this results in other-regarding individuals depressing efforts. In another form punishment reduces the payoff of other workers- groups with other-regarding individuals feature higher efforts because it is more difficult for these individuals to sustain low-effort (collusive) outcomes. We explore these effects experimentally and find other-regarding workers tend to depress efforts by 15% on average. However, selfish workers are nearly three times more likely to lead workers to coordinate on minimal efforts when communication is possible. Hence, the social preferences composition of a team of workers has nuanced consequences on efforts.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 13-176/VII.
Date of creation: 24 Oct 2013
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Social Preferences; Relative Performance; Collusion; Leadership;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- M50 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - General
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
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