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Team or Individual: What Determines Workers' Preferred Bonus Schemes?

  • Gaute Torsvik

This paper uses data from a firm with team production to investigate the association between workers’ productivity, risk aversion and preferred bonus scheme (team or individual). Standard economics make a strong prediction in this case. Workers persistently producing above the team average should vote for an individual bonus. The only concern that may moderate this preference is risk aversion. The economic model predicts the case at hand fairly well. Relative work place productivity is strongly associated with a preference for individual bonuses, and risk aversion is associated with a preference for a team bonus. There is, however, one noticeable exception to this pattern: a substantial fraction of low performers prefer an individual bonus. I argue there are two types of other regarding concerns that can explain why under-performers prefer a payment system that reduces their income; distributional fairness and social emotions.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3658.

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Date of creation: 2011
Date of revision:
Handle: RePEc:ces:ceswps:_3658
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  1. Englmaier, Florian & Wambach, Achim, 2010. "Optimal incentive contracts under inequity aversion," Munich Reprints in Economics 22027, University of Munich, Department of Economics.
  2. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  3. Ellingsen, Tore & Johannesson, Magnus & Tjøtta, Sigve & Torsvik, Gaute, 2007. "Testing Guilt Aversion," SSE/EFI Working Paper Series in Economics and Finance 683, Stockholm School of Economics.
  4. John A. List, 2007. "On the Interpretation of Giving in Dictator Games," Journal of Political Economy, University of Chicago Press, vol. 115, pages 482-493.
  5. Tore Ellingsen & Magnus Johannesson, 2007. "Paying Respect," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 135-150, Fall.
  6. Justin Esarey & Timothy C. Salmon & Charles Barrilleaux, 2012. "What Motivates Political Preferences? Self-Interest, Ideology, And Fairness In A Laboratory Democracy," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 604-624, 07.
  7. repec:oup:qjecon:v:114:y:1999:i:3:p:817-868 is not listed on IDEAS
  8. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
  9. repec:oup:qjecon:v:120:y:2005:i:3:p:917-962 is not listed on IDEAS
  10. Fershtman, Chaim & Gneezy, Uri & List, John, 2008. "Equity Aversion," CEPR Discussion Papers 6853, C.E.P.R. Discussion Papers.
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