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Performance Pay, Sorting and Social Motivation

  • Tor Eriksson

    ()

    (Department of economics - University of Aarhus)

  • Marie Claire Villeval

    ()

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

Variable pay links pay and performance but may also help firms in attracting more productive employees. Our experiment investigates the impact of performance pay on both incentives and sorting and analyzes the influence of repeated interactions between firms and employees on these effects. We show that (i) the opportunity to switch from a fixed wage to variable pay scheme increases the average effort level and its variance; (ii) high skill employees concentrate under the variable pay scheme; (iii) however, in repeated interactions, efficiency wages reduce the attraction of performance pay. Social motivation and reputation influence both the provision of incentives and their sorting effect.

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File URL: http://halshs.archives-ouvertes.fr/docs/00/33/17/53/PDF/JEBO4582_revision_18July07-1.pdf
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Paper provided by HAL in its series Post-Print with number halshs-00331753.

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Date of creation: 2008
Date of revision:
Publication status: Published, Journal of Economic Behavior and Organization, 2008, 68, 2, pp. 412-421
Handle: RePEc:hal:journl:halshs-00331753
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00331753
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  1. Charles Bellemare & Bruce S. Shearer, 2006. "Sorting, Incentives and Risk Preferences: Evidence from a Field Experiment," Cahiers de recherche 0631, CIRPEE.
  2. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
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  4. Simon Gächter & Ernst Fehr, . "Fairness in the Labour Market – A Survey of Experimental Results," IEW - Working Papers 114, Institute for Empirical Research in Economics - University of Zurich.
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  6. Dickinson, David L. & Villeval, Marie Claire, 2004. "Does Monitoring Decrease Work Effort? The Complementarity Between Agency and Crowding-Out Theories," IZA Discussion Papers 1222, Institute for the Study of Labor (IZA).
  7. Fehr, Ernst & Schmidt, Klaus M., 2000. "Fairness, incentives, and contractual choices," Munich Reprints in Economics 20659, University of Munich, Department of Economics.
  8. Tor Eriksson & Sabrina Teyssier & Marie-Claire Villeval, 2006. "Self-Selection and the Efficiency of Tournaments," Working Papers 0603, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
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  19. Daniel Houser & Erte Xiao & Kevin McCabe & Vernon Smith, 2005. "When Punishment Fails: Research on Sanctions, Intentions and Non- Cooperation," Experimental 0502001, EconWPA, revised 18 Feb 2005.
  20. Falk, Armin & Gachter, Simon & Kovacs, Judit, 1999. "Intrinsic motivation and extrinsic incentives in a repeated game with incomplete contracts," Journal of Economic Psychology, Elsevier, vol. 20(3), pages 251-284, June.
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