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

Author

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  • 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.

Suggested Citation

  • Irlenbusch, Bernd & Sliwka, Dirk, 2005. "Incentives, Decision Frames, and Motivation Crowding Out – An Experimental Investigation," IZA Discussion Papers 1758, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1758
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    References listed on IDEAS

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    More about this item

    Keywords

    incentives; crowding-out; reciprocity; reputation; experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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