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Relative and Absolute Incentives: Evidence on Worker Productivity

  • Oriana Bandiera (STICERD
  • LSE

Using personnel data, we compare worker productivity under a relative incentive scheme -where pay is based on individual productivity relative to the average productivity of the group- to productivity under piece rates. We find that productivity is at least 50% higher under piece rates. Further analysis shows this is due to workers partially internalizing the negative externality their effort imposes on others under the relative incentive scheme. Workers internalize this externality to a greater extent when they work with fewer co-workers, and a greater share of their coworkers are their close friends. The relationship among workers has no affect on productivity under piece rates

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 277.

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Date of creation: 11 Aug 2004
Handle: RePEc:ecm:nasm04:277
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