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Can Higher Bonuses Lead to Less E ort? Incentive Reversal in Teams

  • Esteban F. Klor
  • Sebastian Kube
  • Eyal Winter
  • Ro'i Zultan

Conventional wisdom suggests that an increase in monetary incentives should induce agents to exert higher effort. In this paper, however, we demonstrate that this may not hold in team settings. In the context of sequential team production with positive externalities between agents, incentive reversal might occur: an increase in monetary incentives (either because rewards increase or effort costs decrease) may lead agents to exert lower effort in the completion of a joint task – even if agents are fully rational, self-centered money maximizers. Herein we discuss this seemingly paradoxical phenomenon and report on two experiments that provide supportive evidence.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 786969000000000073.

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Date of creation: 25 Mar 2011
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Handle: RePEc:cla:levarc:786969000000000073
Contact details of provider: Web page: http://www.dklevine.com/

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  1. Sebastian Goerg & Sebastian Kube & Ro'i Zultan, 2007. "Treating Equals Unequally - Incentives in Teams, Workers' Motivation and Production Technology," Bonn Econ Discussion Papers bgse17_2007, University of Bonn, Germany, revised Jan 2008.
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  19. Crawford, Vincent P. & Meng, Juanjuan, 2008. "New York City Cabdrivers' Labor Supply Revisited: Reference-Dependence Preferences with Rational-Expectations Targets for Hours and Income," University of California at San Diego, Economics Working Paper Series qt94w5n6j9, Department of Economics, UC San Diego.
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