Advanced Search
MyIDEAS: Login to save this paper or follow this series

Sorting, Incentives and Risk Preferences: Evidence from a Field Experiment

Contents:

Author Info

  • Charles Bellemare
  • Bruce S. Shearer

Abstract

The, often observed, positive correlation between incentive intensity and risk has been explained in two ways: the presence of transaction costs as determinants of contracts and the sorting of risk-tolerant individuals into firms using high-intensity incentive contracts. The empirical importance of sorting is perhaps best evaluated by directly measuring the risk tolerance of workers who have selected into incentive contracts under risky environments. We use experiments, conducted within a real firm, to measure the risk preferences of a sample of workers who are paid incentive contracts and face substantial daily income risk. Our experimental results indicate the presence of sorting; Workers in our sample are risk-tolerant. Moreover, their level of tolerance is considerably higher than levels observed for samples of individuals representing broader populations. Interestingly, the high level of risk tolerance suggests that both sorting and transaction costs are important determinants of contract choices when workers have heterogeneous preferences.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cirpee.org/fileadmin/documents/Cahiers_2006/CIRPEE06-31.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 0631.

as in new window
Length:
Date of creation: 2006
Date of revision:
Handle: RePEc:lvl:lacicr:0631

Contact details of provider:
Postal: CP 8888, succursale Centre-Ville, Montréal, QC H3C 3P8
Phone: (514) 987-8161
Web page: http://www.cirpee.org/
More information through EDIRC

Related research

Keywords: Risk aversion; sorting; incentive contracts; field experiments;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Daniel A. Ackerberg & Maristella Botticini, 2002. "Endogenous Matching and the Empirical Determinants of Contract Form," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(3), pages 564-591, June.
  2. Bonin, Holger & Dohmen, Thomas J. & Falk, Armin & Huffman, David & Sunde, Uwe, 2007. "Cross-sectional earnings risk and occupational sorting: The role of risk attitudes," Munich Reprints in Economics, University of Munich, Department of Economics 20204, University of Munich, Department of Economics.
  3. Armin Falk & Andrea Ichino, 2004. "Clean Evidence on Peer Effects," Levine's Bibliography 666156000000000439, UCLA Department of Economics.
  4. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  5. Allen, Douglas & Lueck, Dean, 1992. "Contract Choice in Modern Agriculture: Cash Rent versus Cropshare," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 35(2), pages 397-426, October.
  6. Gourieroux Christian & Monfort Alain & Trognon A, 1981. "Pseudo maximum likelihood methods : theory," CEPREMAP Working Papers (Couverture Orange) 8129, CEPREMAP.
  7. Harry J. Paarsch & Bruce S. Shearer, 1999. "The Response of Worker Effort to Piece Rates: Evidence from the British Columbia Tree-Planting Industry," Journal of Human Resources, University of Wisconsin Press, vol. 34(4), pages 643-667.
  8. Canice Prendergast, 2000. "What Trade-Off of Risk and Incentives?," American Economic Review, American Economic Association, vol. 90(2), pages 421-425, May.
  9. Bruce Shearer, 2004. "Piece Rates, Fixed Wages and Incentives: Evidence from a Field Experiment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(2), pages 513-534, 04.
  10. Bellemare, Charles & Shearer, Bruce, 2009. "Gift giving and worker productivity: Evidence from a firm-level experiment," Games and Economic Behavior, Elsevier, vol. 67(1), pages 233-244, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:lvl:lacicr:0631. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johanne Perron).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.