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Performance Pay and Multi-dimensional Sorting - Productivity, Preferences and Gender

  • Dohmen Thomas
  • Falk Armin

    (ROA rm)

This paper studies the impact of incentives on worker self-selection in a controlledlaboratory experiment. Subjects face the choice between a fixed and a variable paymentscheme. Depending on the treatment, the variable payment is a piece rate, a tournamentor a revenue-sharing scheme. We find that output is higher in the variable pay schemes(piece rate, tournament, and revenue sharing) compared to the fixed payment scheme.This difference is largely driven by productivity sorting. In addition personal attitudessuch as willingness to take risks and relative self-assessment as well as gender affectthe sorting decision in a systematic way. Moreover, self-reported effort is significantlyhigher in all variable pay conditions than in the fixed wage condition. Our lab findingsare supported by an additional analysis using data from a large and representativesample. In sum, our findings underline the importance of multi-dimensional sorting,i.e., the tendency for different incentive schemes to systematically attract people withdifferent individual characteristics.

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File URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:0e8180e6-4028-4677-a3ef-c37bae8426e6/datastreams/ASSET1/content
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Paper provided by Maastricht University, Research Centre for Education and the Labour Market (ROA) in its series ROA Research Memorandum with number 003.

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Date of creation: 2010
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Handle: RePEc:unm:umaror:2010003
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  1. Armin Falk & James J. Heckman, 2009. "Lab Experiments are a Major Source of Knowledge in the Social Sciences," Working Papers 200935, Geary Institute, University College Dublin.
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  25. Dohmen, Thomas & Falk, Armin & Huffman, David B. & Sunde, Uwe & Schupp, Jürgen & Wagner, Gert G., 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," IZA Discussion Papers 1730, Institute for the Study of Labor (IZA).
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