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Emotions and Incentives

  • Matthias Kräkel

We introduce a concept of emotions that emerge when workers compare their own performance with a given standard or with the performances of co-workers. Assuming heterogeneity among the workers the interplay of emotions and incentives is analysed by focusing on three incentive schemes that are frequently used in practice: tournaments, bonuses and piece rates. We identify certain conditions under which emotions lead to additional incentives and under which the employer benefits from emotional workers. Furthermore, the concept of emotions is used to explain puzzling results from laboratory and field experiments. Finally, the results provide some insights on an employer's possible preferences in favor of heterogeneous instead of homogeneous work groups.

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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse14_2004.pdf
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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse14_2004.

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Length: 59
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:bon:bonedp:bgse14_2004
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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  11. George Loewenstein, 2000. "Emotions in Economic Theory and Economic Behavior," American Economic Review, American Economic Association, vol. 90(2), pages 426-432, May.
  12. Engellandt, Axel & Riphahn, Regina T., 2004. "Incentive Effects of Bonus Payments: Evidence from an International Company," IZA Discussion Papers 1229, Institute for the Study of Labor (IZA).
  13. Elster, Jon, 1996. "Rationality and the Emotions," Economic Journal, Royal Economic Society, vol. 106(438), pages 1386-97, September.
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  19. Green, Jerry & Stokey, Nancy, 1983. "A Comparison of Tournaments and Contracts," Scholarly Articles 3203644, Harvard University Department of Economics.
  20. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1985. "Tournaments and Piece Rates: An Experimental Study," Working Papers 85-21, C.V. Starr Center for Applied Economics, New York University.
  21. Koch, Alexander K. & Peyrache, Eloic, 2005. "Tournaments, Individualized Contracts and Career Concerns," IZA Discussion Papers 1841, Institute for the Study of Labor (IZA).
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  23. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
  24. Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-80, April.
  25. Zabojnik, Jan & Bernhardt, Dan, 2001. "Corporate Tournaments, Human Capital Acquisition, and the Firm Size-Wage Relation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 693-716, July.
  26. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc.
  27. Meyer, Margaret A & Vickers, John, 1997. "Performance Comparisons and Dynamic Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 547-81, June.
  28. Weigelt, Keith & Dukerich, Janet & Schotter, Andrew, 1989. "Reactions to discrimination in an incentive pay compensation scheme: A game-theoretic approach," Organizational Behavior and Human Decision Processes, Elsevier, vol. 44(1), pages 26-44, August.
  29. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
  30. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 921-55, November.
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