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Social Preferences and the Response to Incentives: Evidence from Personnel Data

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Author Info
Orana Bandiera
Iwan Barankay
Imran Rasul

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Abstract

We present evidence on whether workers have social preferences by comparing workers’ productivity under relative incentives, where individual effort imposes a negative externality on others, to their productivity under piece rates, where it does not. We find that the productivity of the average worker is at least 50 percent higher under piece rates than under relative incentives. We show that this is due to workers partially internalizing the negative externality their effort imposes on others under relative incentives, especially when working alongside their friends. Under piece rates, the relationship among workers does not affect productivity. Further analysis reveals that workers internalize the externality only when they can monitor others and be monitored. This rules out pure altruism as the underlying motive of workers’ behavior.

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Paper provided by The Field Experiments Website in its series Natural Field Experiments with number 0014.

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Date of creation: 2005
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Handle: RePEc:feb:natura:0014

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  20. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August. [Downloadable!] (restricted)
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  21. V. Bhaskar, 2002. "Relative Performance Evaluation and Limited Liability," Economics Discussion Papers 550, University of Essex, Department of Economics. [Downloadable!]
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  25. Cardenas, Juan-Camilo, 2003. "Real wealth and experimental cooperation: experiments in the field lab," Journal of Development Economics, Elsevier, vol. 70(2), pages 263-289, April. [Downloadable!] (restricted)
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