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Incentive Reversal

  • Eyal Winter

By incentive reversal we refer to situations in which an increase in rewards for all agents results in fewer agents exerting effort. We show that externalities among peers may give rise to such intriguing situations even when all agents are fully rational. We provide a necessary and sufficient condition for the organizational technology so that it will be susceptible to incentive reversal. The condition implies that some degree of complementarity is enough to allow incentive reversal. (JEL D23, D82, M54)

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 843644000000000241.

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Date of creation: 22 Jul 2007
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Handle: RePEc:cla:levarc:843644000000000241
Contact details of provider: Web page: http://www.dklevine.com/

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  1. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-36, May.
  2. Fischbacher, Urs & Gachter, Simon & Fehr, Ernst, 2001. "Are people conditionally cooperative? Evidence from a public goods experiment," Economics Letters, Elsevier, vol. 71(3), pages 397-404, June.
  3. Eyal Winter, 2003. "Incentives and Discrimination," Discussion Paper Series dp313, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  4. Baliga, Sandeep & Sjostrom, Tomas, 1998. "Decentralization and Collusion," Journal of Economic Theory, Elsevier, vol. 83(2), pages 196-232, December.
  5. repec:rje:randje:v:37:y:2006:2:p:376-390 is not listed on IDEAS
  6. Uri Gneezy & Aldo Rustichini, 2000. "Pay Enough Or Don'T Pay At All," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 791-810, August.
  7. Eyal Winter, 2006. "Optimal incentives for sequential production processes," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 376-390, 06.
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