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An experimental comparison of incentive contracts in partnerships

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  • Chao, Hong
  • Croson, Rachel T.A.

Abstract

Empirical work comparing individualized sharing and equal sharing schemes in partnerships has produced mixed results. Some studies find individualized sharing schemes superior, others find no difference, and still others find equal sharing schemes superior. This paper outlines a theory which reconciles these competing findings, and tests it with an experiment. We find that in conditions of high synergy (when the teammate’s effort has a proportionately larger impact on an agent’s output than the agent’s own effort), equal sharing schemes outperform individualized sharing schemes, while in conditions of low synergy, individualized sharing schemes outperform equal sharing schemes. These results are consistent with observations from the field. Our results have the potential to guide firms choosing between competing compensation contracts by identifying situations under which each contract type is likely to yield increased productivity.

Suggested Citation

  • Chao, Hong & Croson, Rachel T.A., 2013. "An experimental comparison of incentive contracts in partnerships," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 78-87.
  • Handle: RePEc:eee:joepsy:v:34:y:2013:i:c:p:78-87
    DOI: 10.1016/j.joep.2012.11.009
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    References listed on IDEAS

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    More about this item

    Keywords

    Partnership; Incentive; Contract; Synergy;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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