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

  • Irlenbusch, Bernd


    (University of Cologne)

  • Sliwka, Dirk


    (University of Cologne)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1758.

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Length: 36 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1758
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