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

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Author Info
Bernd Irlenbusch () (London School of Economics and IZA Bonn)
Dirk Sliwka () (University of Cologne and IZA Bonn)

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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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Publisher 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
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Handle: RePEc:iza:izadps:dp1758

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

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Gary Charness, 2004. "Attribution and Reciprocity in an Experimental Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 665-688, July. [Downloadable!]
    Other versions:
  3. Adriana D. Kugler & Gilles Saint-Paul, 2004. "How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 553-584, July. [Downloadable!]
  4. Fehr, Ernst & Falk, Armin, 2002. "Psychological Foundations of Incentives," IZA Discussion Papers 507, Institute for the Study of Labor (IZA). [Downloadable!]
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  5. Gary E Bolton & Axel Ockenfels, 1997. "A Theory of Equity, Reciprocity, and Competition," Levine's Working Paper Archive 1889, David K. Levine. [Downloadable!]
  6. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
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  11. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 437-59, May. [Downloadable!] (restricted)
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  15. Frey, Bruno S & Oberholzer-Gee, Felix, 1997. "The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out," American Economic Review, American Economic Association, vol. 87(4), pages 746-55, September. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dirk Sliwka, 2003. "On the Hidden Costs of Incentive Schemes," Bonn Econ Discussion Papers bgse12_2003, University of Bonn, Germany. [Downloadable!]
    Other versions:
  2. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A preference-Based Lucas Critique of Public Policy," Working Papers 2009-11, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
    Other versions:
  3. Dirk Sliwka, 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). [Downloadable!]
    Other versions:
  4. Bernd Irlenbusch & Gabriele K. Ruchala, 2006. "Relative Rewards within Team-Based Compensation," IZA Discussion Papers 2423, Institute for the Study of Labor (IZA). [Downloadable!]
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