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Can Higher Bonuses Lead to Less Effort? Incentive Reversal in Teams

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Author Info

  • Klor, Esteban F.

    () (Hebrew University, Jerusalem)

  • Kube, Sebastian

    () (University of Bonn)

  • Winter, Eyal

    () (Hebrew University, Jerusalem)

  • Zultan, Ro'i

    () (Max Planck Institute for Economics)

Abstract

Conventional wisdom suggests that an increase in monetary incentives should induce agents to exert higher effort. In this paper, however, we demonstrate that this may not hold in team settings. In the context of sequential team production with positive externalities between agents, incentive reversal might occur: an increase in monetary incentives (either because rewards increase or effort costs decrease) may lead agents to exert lower effort in the completion of a joint task – even if agents are fully rational, self-centered money maximizers. Herein we discuss this seemingly paradoxical phenomenon and report on two experiments that provide supportive evidence.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5501.

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Length: 32 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5501

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Related research

Keywords: incentives; incentive reversal; team production; externalities; laboratory experiments; personnel economics;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Incentives doublethink
    by chris dillow in Stumbling and Mumbling on 2012-02-28 14:49:53
  2. How bonuses backfire
    by chris dillow in Stumbling and Mumbling on 2011-03-01 14:20:38
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Cited by:
  1. Goerg, Sebastian & Kube, Sebastian & Zultan, Ro'i, 2009. "Treating Equals Unequally: Incentives in Teams, Workers' Motivation and Production Technology," IZA Discussion Papers 3959, Institute for the Study of Labor (IZA).
  2. Eva-Maria Steiger & Ro'i Zultan, 2011. "See No Evil: Information Chains and Reciprocity in Teams," Jena Economic Research Papers 2011-040, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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