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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.

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

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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
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  15. Sebastian Goerg & Sebastian Kube & Ro'i Zultan, 2007. "Treating Equals Unequally - Incentives in Teams, Workers' Motivation and Production Technology," Bonn Econ Discussion Papers bgse17_2007, University of Bonn, Germany, revised Jan 2008.
  16. Eyal Winter, 2007. "Incentive Reversal," Levine's Working Paper Archive 843644000000000241, David K. Levine.
  17. Harrison, Glenn W & McCabe, Kevin A, 1996. "Expectations and Fairness in a Simple Bargaining Experiment," International Journal of Game Theory, Springer;Game Theory Society, vol. 25(3), pages 303-27.
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