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The roles of selection and practice in mitigating negative responses to high-powered incentives

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  • Rosario Macera

    (Pontificia Universidad Católica de Chile)

Abstract

Despite substantial evidence for the effectiveness of monetary incentives, some experiments have shown that high-powered incentives might lead to lower performance than lesser incentives. This study explores whether firms have means to counter these potential negative effects. Building on a standard experimental design identifying the drawbacks of large-stake rewards, it shows that when workers either self-select into the task or have prior practice, high-powered incentives lead to higher average performance than a smaller reward. This effect is driven mainly by selection and practice increasing the share of workers who respond positively to high-powered incentives. These results suggest that firms have natural instruments to deal with the potential adverse effects of high-powered incentives.

Suggested Citation

  • Rosario Macera, 2024. "The roles of selection and practice in mitigating negative responses to high-powered incentives," Experimental Economics, Springer;Economic Science Association, vol. 27(5), pages 973-1000, November.
    • Handle: RePEc:kap:expeco:v:27:y:2024:i:5:d:10.1007_s10683-024-09841-1
    DOI: 10.1007/s10683-024-09841-1
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    More about this item

    Keywords

    High-powered incentives; Choking under pressure;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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