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

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  • Omar Al‐Ubaydli
  • Steffen Andersen
  • Uri Gneezy
  • John A. List

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.

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  • 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, John Wiley & Sons, vol. 81(3), pages 538-561, January.
  • Handle: RePEc:wly:soecon:v:81:y:2015:i:3:p:538-561
    DOI: 10.4284/0038-4038-2013.248
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    Cited by:

    1. 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.
    2. Katharina Laske & Marina Schroeder, 2016. "Quantity, Quality, and Originality: The Effects of Incentives on Creativity," Cologne Graduate School Working Paper Series 07-01, Cologne Graduate School in Management, Economics and Social Sciences.
    3. Roman M. Sheremeta, 2016. "The pros and cons of workplace tournaments," IZA World of Labor, Institute of Labor Economics (IZA), pages 302-302, October.
    4. 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.
    5. 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.
    6. Rubin, Jared & Samek, Anya & Sheremeta, Roman, 2016. "Incentivizing Quantity and Quality of Output: An Experimental Investigation of the Quantity-Quality Trade-off," MPRA Paper 69080, University Library of Munich, Germany.
    7. Karlan, Dean & List, John A., 2020. "How can Bill and Melinda Gates increase other people's donations to fund public goods?," Journal of Public Economics, Elsevier, vol. 191(C).
    8. 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.
    9. Stefano DellaVigna & John A. List & Ulrike Malmendier & Gautam Rao, 2022. "Estimating Social Preferences and Gift Exchange at Work," American Economic Review, American Economic Association, vol. 112(3), pages 1038-1074, March.
    10. Daniel Jones & Mirco Tonin & Michael Vlassopoulos, 2018. "Paying for what kind of Performance? Performance Pay and Multitasking in Mission-Oriented Jobs," CESifo Working Paper Series 7156, CESifo.
    11. David Huffman & Michael Bognanno, 2018. "High-Powered Performance Pay and Crowding Out of Nonmonetary Motives," Management Science, INFORMS, vol. 64(10), pages 4669-4680, October.
    12. Zahra Murad & Charitini Stavropoulou & Graham Cookson, 2019. "Incentives and gender in a multi-task setting: An experimental study with real-effort tasks," PLOS ONE, Public Library of Science, vol. 14(3), pages 1-18, March.
    13. 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.

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    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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