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Incentive Design and Trust: Comparing the Effects of Tournament and Team-Based Incentives on Trust

Author

Listed:
  • Oxoby, Robert J.

    (University of Calgary)

  • Friedrich, Colette

    (MIT)

Abstract

We explore the extent to which the structure of incentives affects trust. We hypothesize that the degree to which different incentive mechanisms emphasize competition (via the perceived intentions of others) and entitlements (via the perceived property rights) will affect individuals’ subsequent behavior. In our experiment, bargaining pairs earned endowments through either tournaments or team-based incentives. Participants engaged in a subsequent trust game in which the sender had access to the total endowment generated by the pair. We find that the structure of the incentive mechanisms has asymmetric effects on observed trust in which participants’ relative performance framed trusting behavior.

Suggested Citation

  • Oxoby, Robert J. & Friedrich, Colette, 2008. "Incentive Design and Trust: Comparing the Effects of Tournament and Team-Based Incentives on Trust," IZA Discussion Papers 3424, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp3424
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    References listed on IDEAS

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    Cited by:

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    Keywords

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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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