Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes
AbstractConstructing compensation schemes for effort in multi-dimensional tasks is complex, particularly when some dimensions are not easily observable. When incentive schemes contractually reward workers for easily observed measures, such as quantity produced, the standard model predicts that unrewarded dimensions, such as quality, will be neglected. Yet, there remains mixed empirical evidence in favor of this standard principal-agent model prediction. This paper reconciles the literature by using both theory and empirical evidence. The theory outlines conditions under which principals can use a piece rate scheme to induce higher quantity and quality levels than analogous fixed wage schemes. Making use of a series of complementary laboratory and field experiments we show that this effect occurs because the agent is uncertain about the principal’s monitoring ability and the principal’s choice of a piece rate signals to the agent that she is efficient at monitoring.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18453.
Date of creation: Oct 2012
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Find related papers by JEL classification:
- C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-20 (All new papers)
- NEP-CTA-2012-10-20 (Contract Theory & Applications)
- NEP-EXP-2012-10-20 (Experimental Economics)
- NEP-HRM-2012-10-20 (Human Capital & Human Resource Management)
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