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

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  • Klor, Esteban F.

    () (Hebrew University, Jerusalem)

  • Kube, Sebastian

    () (University of Bonn)

  • Winter, Eyal

    () (Hebrew University, Jerusalem)

  • Zultan, Ro'i

    () (Max Planck Institute for Economics)

Abstract

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.

Suggested Citation

  • Klor, Esteban F. & Kube, Sebastian & Winter, Eyal & Zultan, Ro'i, 2011. "Can Higher Bonuses Lead to Less Effort? Incentive Reversal in Teams," IZA Discussion Papers 5501, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5501
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    References listed on IDEAS

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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Incentives doublethink
      by chris dillow in Stumbling and Mumbling on 2012-02-28 20:49:53
    2. How bonuses backfire
      by chris dillow in Stumbling and Mumbling on 2011-03-01 20:20:38
    3. Ronnie O'Sullivan & the limits of incentives
      by chris in Stumbling and Mumbling on 2016-02-16 19:36:36

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ester Manna, 2015. "Intrinsically Motivated Agents in Teams," UB Economics Working Papers 2015/326, Universitat de Barcelona, Facultat d'Economia i Empresa, UB Economics.
    2. 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.
    3. Steiger, Eva-Maria & Zultan, Ro'i, 2014. "See no evil: Information chains and reciprocity," Journal of Public Economics, Elsevier, vol. 109(C), pages 1-12.
    4. Roi Zultan & Eva-Maria Steiger, 2011. "See No Evil: Information Chains and Reciprocity in Teams," Working Papers 1108, Ben-Gurion University of the Negev, Department of Economics.
    5. Bel, Roland & Smirnov, Vladimir & Wait, Andrew, 2012. "On Broadway and strip malls: how to make a winning team," Working Papers 2012-14, University of Sydney, School of Economics.

    More about this item

    Keywords

    laboratory experiments; externalities; team production; incentive reversal; incentives; personnel economics;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • 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
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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