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Relative and Absolute Incentives: Evidence on Worker Productivity

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  • Oriana Bandiera (STICERD
  • LSE

Abstract

Using personnel data, we compare worker productivity under a relative incentive scheme -where pay is based on individual productivity relative to the average productivity of the group- to productivity under piece rates. We find that productivity is at least 50% higher under piece rates. Further analysis shows this is due to workers partially internalizing the negative externality their effort imposes on others under the relative incentive scheme. Workers internalize this externality to a greater extent when they work with fewer co-workers, and a greater share of their coworkers are their close friends. The relationship among workers has no affect on productivity under piece rates

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 277.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:277

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Keywords: absolute incentives; relative incentives; social preferences.;

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Cited by:
  1. Steffen Huck & Pedro Rey-Biel, 2006. "Endogenous Leadership in Teams," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(2), pages 253-261, June.
  2. 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.
  3. Pedro Rey Biel, 2005. "Equilibrium Play and Best Response in Sequential Constant Sum Games," Experimental 0506004, EconWPA.
  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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