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Incentives, Decision Frames, and Motivation Crowding Out – An Experimental Investigation

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Author Info

  • Irlenbusch, Bernd

    ()
    (University of Cologne)

  • Sliwka, Dirk

    ()
    (University of Cologne)

Abstract

A simple principal agent problem is experimentally investigated in which a principal repeatedly sets a wage and an agent responds by choosing an effort level. The principal's payoff is determined by the agent's effort. In a first setting the principal can only set a fixed wage in each period. In a second setting the principal has the possibility to supplement the fixed wage with a piece rate. Surprisingly, efforts are lower in the case where piece rates can be paid. Furthermore, switching in the same treatment from a setting where piece rates are available to one where only fixed wages can be paid tends to lead to even lower effort levels. Based on our findings we suggest a new explanation for motivation crowding out by arguing that the use of piece rates considerably alters the principals' and agents' perception of the situation.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1758.

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Length: 36 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1758

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Related research

Keywords: incentives; crowding-out; reciprocity; reputation; experiment;

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References

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Citations

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Cited by:
  1. Bruno S. Frey & Margit Osterloh, 2004. "Yes, Managers Should Be Paid Like Bureaucrats," CREMA Working Paper Series 2005-03, Center for Research in Economics, Management and the Arts (CREMA).
  2. Danilov, Anastasia & Sliwka, Dirk, 2013. "Can Contracts Signal Social Norms? Experimental Evidence," IZA Discussion Papers 7477, Institute for the Study of Labor (IZA).
  3. Irlenbusch, Bernd & Ruchala, Gabriele K., 2006. "Relative Rewards within Team-Based Compensation," IZA Discussion Papers 2423, Institute for the Study of Labor (IZA).
  4. Kocher, Martin G. & Luhan, Wolfgang J. & Sutter, Matthias, 2012. "Testing a forgotten aspect of Akerlof’s gift exchange hypothesis: Relational contracts with individual and uniform wages," Discussion Papers in Economics 12816, University of Munich, Department of Economics.
  5. Sliwka, Dirk, 2003. "On the Hidden Costs of Incentive Schemes," IZA Discussion Papers 844, Institute for the Study of Labor (IZA).
  6. Samuel Bowles & Sung Ha Hwang, 2008. "Social Preferences and Public Economics: Mechanism design when social preferences depend on incentives," UMASS Amherst Economics Working Papers 2008-06, University of Massachusetts Amherst, Department of Economics.
  7. Irlenbusch, Bernd & Ruchala, Gabriele K., 2008. "Relative rewards within team-based compensation," Labour Economics, Elsevier, vol. 15(2), pages 141-167, April.
  8. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A preference-Based Lucas Critique of Public Policy," UMASS Amherst Economics Working Papers 2009-11, University of Massachusetts Amherst, Department of Economics.
  9. Michel Marechal & Christian Thoni, 2007. "Do managers reciprocate? Field experimental evidence from a competitive market," Natural Field Experiments 00310, The Field Experiments Website.
  10. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A Preference-based Lucas Critique of Public Policy," CESifo Working Paper Series 2734, CESifo Group Munich.
  11. Samuel Bowles & Sandra Polania-Reyes, 2011. "Economic incentives and social preferences: substitutes or complements?," Department of Economics University of Siena 617, Department of Economics, University of Siena.
  12. Sliwka, Dirk, 2006. "Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes," IZA Discussion Papers 2293, Institute for the Study of Labor (IZA).
  13. Harbring, Christine & Irlenbusch, Bernd, 2008. "How many winners are good to have?: On tournaments with sabotage," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 682-702, March.

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