IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Can Higher Bonuses Lead to Less Effort? Incentive Reversal in Teams

  • Klor, Esteban F.

    ()

    (Hebrew University, Jerusalem)

  • Kube, Sebastian

    ()

    (University of Bonn)

  • Winter, Eyal

    ()

    (Hebrew University, Jerusalem)

  • Zultan, Ro'i

    ()

    (Max Planck Institute for Economics)

Conventional wisdom suggests that an increase in monetary incentives should induce agents to exert higher effort. In this paper, however, we demonstrate that this may not hold in team settings. In the context of sequential team production with positive externalities between agents, incentive reversal might occur: an increase in monetary incentives (either because rewards increase or effort costs decrease) may lead agents to exert lower effort in the completion of a joint task – even if agents are fully rational, self-centered money maximizers. Herein we discuss this seemingly paradoxical phenomenon and report on two experiments that provide supportive evidence.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ftp.iza.org/dp5501.pdf
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5501.

as
in new window

Length: 32 pages
Date of creation: Feb 2011
Date of revision:
Publication status: published in: Journal of Economic Behavior & Organization, 2014, 97, 72-83
Handle: RePEc:iza:izadps:dp5501
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Urs Fischbacher & Simon Gaechter, 2009. "Social Preferences, Beliefs, and the Dynamics of Free Riding in Public Good Experiments," Discussion Papers 2009-04, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  2. Andrea Ichino & Giovanni Maggi, 1999. "Work Environment and Individual Background: Explaining Regional Shirking Differentials in a Large Italian Firm," NBER Working Papers 7415, National Bureau of Economic Research, Inc.
  3. Fehr, Ernst & Schmidt, Klaus M., 2004. "Fairness and Incentives in a Multi-Task Principal-Agent Model," Discussion Papers in Economics 335, University of Munich, Department of Economics.
  4. Eyal Winter, 2007. "Incentive Reversal," Levine's Working Paper Archive 122247000000001525, David K. Levine.
  5. John Bone & John Hey & John Suckling, 2009. "Do people plan?," Experimental Economics, Springer, vol. 12(1), pages 12-25, March.
  6. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
  7. Henry S. Farber, 2008. "Reference-Dependent Preferences and Labor Supply: The Case of New York City Taxi Drivers," American Economic Review, American Economic Association, vol. 98(3), pages 1069-82, June.
  8. Ernst Fehr & John List, 2004. "The hidden costs and returns of incentives - trust and trustworthiness among ceos," Artefactual Field Experiments 00044, The Field Experiments Website.
  9. 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.
  10. Crawford, Vincent P. & Meng, Juanjuan, 2008. "New York City Cabdrivers' Labor Supply Revisited: Reference-Dependence Preferences with Rational-Expectations Targets for Hours and Income," University of California at San Diego, Economics Working Paper Series qt94w5n6j9, Department of Economics, UC San Diego.
  11. Sebastian J. Goerg & Sebastian Kube & Ro'i Zultan, 2010. "Treating Equals Unequally: Incentives in Teams, Workers' Motivation, and Production Technology," Journal of Labor Economics, University of Chicago Press, vol. 28(4), pages 747-772, October.
  12. Eyal Winter, 2010. "Transparency and incentives among peers," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 504-523.
  13. Urs Fischbacher & Simon Gaechter & Ernst Fehr, . "Are People Conditionally Cooperative? Evidence from a Public Goods Experiment," IEW - Working Papers 016, Institute for Empirical Research in Economics - University of Zurich.
  14. Alexandre Mas & Enrico Moretti, 2006. "Peers at Work," NBER Working Papers 12508, National Bureau of Economic Research, Inc.
  15. Harrison, Glenn W & McCabe, Kevin A, 1996. "Expectations and Fairness in a Simple Bargaining Experiment," International Journal of Game Theory, Springer, vol. 25(3), pages 303-27.
  16. Vincent P. Crawford & Juanjuan Meng, 2011. "New York City Cab Drivers' Labor Supply Revisited: Reference-Dependent Preferences with Rational-Expectations Targets for Hours and Income," American Economic Review, American Economic Association, vol. 101(5), pages 1912-32, August.
  17. Binmore, Ken & McCarthy, John & Ponti, Giovanni & Samuelson, Larry & Shaked, Avner, 2002. "A Backward Induction Experiment," Journal of Economic Theory, Elsevier, vol. 104(1), pages 48-88, May.
  18. Camerer, Colin, et al, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 407-41, May.
  19. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 15(5), pages 589-611, December.
  20. Clark, Kenneth & Sefton, Martin, 2001. "The Sequential Prisoner's Dilemma: Evidence on Reciprocation," Economic Journal, Royal Economic Society, vol. 111(468), pages 51-68, January.
  21. Armin Falk & Andrea Ichino, 2006. "Clean Evidence on Peer Effects," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 39-58, January.
  22. Johnson, Eric J. & Camerer, Colin & Sen, Sankar & Rymon, Talia, 2002. "Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining," Journal of Economic Theory, Elsevier, vol. 104(1), pages 16-47, May.
  23. Guttman, Joel M., 1986. "Matching behavior and collective action : Some experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 7(2), pages 171-198, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp5501. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.