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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:
Publication status: published in: Journal of Economic Behavior & Organization, 2014, 97, 72-83
Handle: RePEc:iza:izadps:dp5501

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Related research

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

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References

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  14. Sebastian Goerg & Sebastian Kube & Ro'i Zultan, 2007. "Treating Equals Unequally - Incentives in Teams, Workers' Motivation and Production Technology," Bonn Econ Discussion Papers bgse17_2007, University of Bonn, Germany, revised Jan 2008.
  15. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
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  17. Eyal Winter, 2007. "Incentive Reversal," Levine's Working Paper Archive 122247000000001525, David K. Levine.
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  20. Eyal Winter, 2010. "Transparency and incentives among peers," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 504-523.
  21. Crawford, Vincent P. & Meng, Juanjuan, 2008. "New York City Cabdrivers' Labor Supply Revisited: Reference-Dependence Preferences with Rational-Expectations Targets for Hours and Income," University of California at San Diego, Economics Working Paper Series qt94w5n6j9, Department of Economics, UC San Diego.
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  23. Johnson, Eric J. & Camerer, Colin & Sen, Sankar & Rymon, Talia, 2002. "Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining," Journal of Economic Theory, Elsevier, vol. 104(1), pages 16-47, May.
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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.
  3. Bel, Roland & Smirnov, Vladimir & Wait, Andrew, 2012. "On Broadway and strip malls: how to make a winning team," Working Papers 2012-14, University of Sydney, School of Economics.

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