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Carrots That Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes

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  • Omar Al-Ubaydli

    () (Research Department, Bahrain Center for Strategic, International and Energy Studies, PO Box 496, Manama, Kingdom of Bahrain; and Department of Economics and Mercatus Center, George Mason University, 4400 University Drive, Fairfax VA, 22030, USA)

  • Steffen Andersen

    () (Department of Economics, Copenhagen Business School, Solbjerg Plads 3, DK-2000 Frederiksberg, Denmark)

  • Uri Gneezy

    () (Rady School of Management, University of California at San Diego, Wells Fargo Hall, Room 4W108, 9500 Gillman Drive #0553, La Jolla CA, 92093-0553, USA)

  • John A. List

    () (Department of Economics, University of Chicago, 1126 E 59th St, Chicago IL, 60637, USA; National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge MA, 02138, USA)

Abstract

Constructing compensation schemes for effort in multidimensional 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 article reconciles the literature 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.

Suggested Citation

  • Omar Al-Ubaydli & Steffen Andersen & Uri Gneezy & John A. List, 2015. "Carrots That Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes," Southern Economic Journal, Southern Economic Association, vol. 81(3), pages 538-561, January.
  • Handle: RePEc:sej:ancoec:v:81:3:y:2015:p:538-561
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    File URL: http://dx.doi.org/10.4284/0038-4038-2013.248
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    References listed on IDEAS

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    1. Paarsch, Harry J & Shearer, Bruce, 2000. "Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 59-92, February.
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    Citations

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    Cited by:

    1. Stefano DellaVigna & John List & Ulrike Malmendier & Gautam Rao, 2016. "Estimating Social Preferences and Gift Exchange at Work," Natural Field Experiments 00586, The Field Experiments Website.
    2. Gosnell, Greer & Metcalfe, Robert & List, John A, 2016. "A new approach to an age-old problem: solving externalities by incenting workers directly," LSE Research Online Documents on Economics 84331, London School of Economics and Political Science, LSE Library.
    3. Christiane Bradler & Robert Dur & Susanne Neckermann & Arjan Non, 2016. "Employee Recognition and Performance: A Field Experiment," Management Science, INFORMS, vol. 62(11), pages 3085-3099, November.
    4. Manthei, Kathrin & Sliwka, Dirk, 2018. "Multitasking and Subjective Performance Evaluations: Theory and Evidence from a Field Experiment in a Bank," IZA Discussion Papers 11581, Institute for the Study of Labor (IZA).
    5. Eric Floyd & John A. List, 2016. "Using Field Experiments in Accounting and Finance," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 437-475, May.
    6. Laske, Katharina & Schröder, Marina, 2017. "Quantity, Quality and Originality: The Effects of Incentives on Creativity," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168151, Verein für Socialpolitik / German Economic Association.
    7. Roman M. Sheremeta, 2016. "The pros and cons of workplace tournaments," IZA World of Labor, Institute for the Study of Labor (IZA), pages 302-302, October.
    8. Fuhai Hong & Tanjim Hossain & John A. List & Migiwa Tanaka, 2018. "Testing The Theory Of Multitasking: Evidence From A Natural Field Experiment In Chinese Factories," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(2), pages 511-536, May.
    9. Jared Rubin & Anya Samek & Roman M. Sheremeta, 2018. "Loss aversion and the quantity–quality tradeoff," Experimental Economics, Springer;Economic Science Association, vol. 21(2), pages 292-315, June.
    10. Karlan, Dean & List, Jonathan A., 2012. "How Can Bill and Melinda Gates Increase Other People's Donations to Fund Public Goods?," Working Papers 101, Yale University, Department of Economics.
    11. Jared Rubin & Anya Samek & Roman M. Sheremeta, 2016. "Incentivizing Quantity and Quality of Output: An Experimental Investigation of the Quantity-Quality Trade-off," Working Papers 16-01, Chapman University, Economic Science Institute.
    12. Dolan, Paul & Galizzi, Matteo M., 2015. "Like ripples on a pond: Behavioral spillovers and their implications for research and policy," Journal of Economic Psychology, Elsevier, vol. 47(C), pages 1-16.
    13. Daniel Jones & Mirco Tonin & Michael Vlassopoulos, 2018. "Paying for what kind of performance? Performance pay and multitasking in mission-oriented jobs," BEMPS - Bozen Economics & Management Paper Series BEMPS51, Faculty of Economics and Management at the Free University of Bozen.
    14. Daniel Jones & Mirco Tonin & Michael Vlassopoulos, 2018. "Paying for what kind of performance? Performance pay and multitasking in mission-oriented jobs," BEMPS - Bozen Economics & Management Paper Series BEMPS51, Faculty of Economics and Management at the Free University of Bozen.

    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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