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Incentives, Decision Frames, and Motivation Crowding Out – An Experimental Investigation

Author

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  • Irlenbusch, Bernd

    (University of Cologne)

  • Sliwka, Dirk

    (University of Cologne)

Abstract

A simple principal agent problem is experimentally investigated in which a principal repeatedly sets a wage and an agent responds by choosing an effort level. The principal's payoff is determined by the agent's effort. In a first setting the principal can only set a fixed wage in each period. In a second setting the principal has the possibility to supplement the fixed wage with a piece rate. Surprisingly, efforts are lower in the case where piece rates can be paid. Furthermore, switching in the same treatment from a setting where piece rates are available to one where only fixed wages can be paid tends to lead to even lower effort levels. Based on our findings we suggest a new explanation for motivation crowding out by arguing that the use of piece rates considerably alters the principals' and agents' perception of the situation.

Suggested Citation

  • Irlenbusch, Bernd & Sliwka, Dirk, 2005. "Incentives, Decision Frames, and Motivation Crowding Out – An Experimental Investigation," IZA Discussion Papers 1758, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp1758
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    3. Ugolini, Cristina & Lippi Bruni, Matteo & Leucci, Anna Caterina & Fiorentini, Gianluca & Berti, Elena & Nobilio, Lucia & Moro, Maria Luisa, 2019. "Disease management in diabetes care: When involving GPs improves patient compliance and health outcomes," Health Policy, Elsevier, vol. 123(10), pages 955-962.
    4. Bowles, Samuel & Hwang, Sung-Ha, 2008. "Social preferences and public economics: Mechanism design when social preferences depend on incentives," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1811-1820, August.
    5. Michel Marechal & Christian Thoni, 2007. "Do managers reciprocate? Field experimental evidence from a competitive market," Natural Field Experiments 00310, The Field Experiments Website.
    6. Danilov, Anastasia & Sliwka, Dirk, 2013. "Can Contracts Signal Social Norms? Experimental Evidence," IZA Discussion Papers 7477, Institute of Labor Economics (IZA).
    7. Sliwka, Dirk, 2003. "On the Hidden Costs of Incentive Schemes," IZA Discussion Papers 844, Institute of Labor Economics (IZA).
    8. Samuel Bowles & Sandra Polania-Reyes, 2011. "Economic incentives and social preferences: substitutes or complements?," Department of Economics University of Siena 617, Department of Economics, University of Siena.
    9. Kocher, Martin G. & Luhan, Wolfgang J. & Sutter, Matthias, 2012. "Testing a forgotten aspect of Akerlof’s gift exchange hypothesis: Relational contracts with individual and uniform wages," Discussion Papers in Economics 12816, University of Munich, Department of Economics.
    10. Hoeppner Sven & Kirchner Christian, 2016. "Ex ante versus Ex post Governance: A Behavioral Perspective," Review of Law & Economics, De Gruyter, vol. 12(2), pages 227-259, July.
    11. Bruno S. Frey & Margit Osterloh, "undated". "Yes, Managers Should be Paid Like Bureaucrats," IEW - Working Papers 187, Institute for Empirical Research in Economics - University of Zurich.
    12. Dirk Sliwka, 2007. "Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes," American Economic Review, American Economic Association, vol. 97(3), pages 999-1012, June.
    13. Hirsch, Bernhard & Schmiedke, Michael & Reemts, Stefan, 2009. "Anreizsysteme für Soldaten der Bundeswehr – Theoretische Analyse und Gestaltungsempfehlungen," ZögU - Zeitschrift für öffentliche und gemeinwirtschaftliche Unternehmen, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 32(1), pages 19-43.
    14. Jon C. Thompson & Jiabin Wu, 2018. "Legal institution and the evolution of moral conduct," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(5), pages 725-741, October.
    15. Friedl, Andreas & Neyse, Levent & Schmidt, Ulrich, 2018. "Payment scheme changes and effort Adjustment: The role of 2D:4D digit ratio," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 72(C), pages 86-94.
    16. Caleb Cox & Matthew Jones & Kevin Pflum & Paul Healy, 2015. "Revealed reputations in the finitely repeated prisoners’ dilemma," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(3), pages 441-484, April.
    17. Irlenbusch, Bernd & Ruchala, Gabriele K., 2008. "Relative rewards within team-based compensation," Labour Economics, Elsevier, vol. 15(2), pages 141-167, April.
    18. Irlenbusch, Bernd & Ruchala, Gabriele K., 2006. "Relative Rewards within Team-Based Compensation," IZA Discussion Papers 2423, Institute of Labor Economics (IZA).
    19. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A preference-Based Lucas Critique of Public Policy," UMASS Amherst Economics Working Papers 2009-11, University of Massachusetts Amherst, Department of Economics.
    20. Harbring, Christine & Irlenbusch, Bernd, 2008. "How many winners are good to have?: On tournaments with sabotage," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 682-702, March.
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    More about this item

    Keywords

    incentives; crowding-out; reciprocity; reputation; experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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