The Effectiveness of Incentive Schemes in the Presence of Implicit Effort Costs

Sebastian Goerg, Sebastian Kube and Jonas Radbruch ()

No 10546, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Agents' decisions to exert effort depends on the provided incentives as well as the potential costs for doing so. So far most of the attention has been on the incentive side. However, our lab experiments underline that both the incentive and cost side can be used separately to shape work performance. In our experiment, subjects work on a real-effort task. Between treatments, we vary the incentive scheme used for compensating workers. Additionally, by varying the available outside options, we explore the role of implicit costs of effort in determining workers' performance. We observe that incentive contracts and implicit costs interact in a non-trivial manner. Performance reacts significantly to changes in implicit effort costs under low-powered piece-rate and target-based bonus contracts, but not under a high piece rate contract. In addition, comparisons between the incentive schemes depend crucially on the implicit costs.

Keywords: incentive schemes; workers' performance; work environments; implicit cost; opportunity costs (search for similar items in EconPapers)
JEL-codes: C91 D01 D03 D24 J22 J24 J33 L23 M52 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2017-02
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-exp, nep-hrm and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published - substantially revised version published in: Management Science, 2019, 65 (9), 3949-4450.

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