Give me a challenge or give me a raise

Aleksandr Alekseev

Experimental Economics, 2022, vol. 25, issue 1, No 7, 170-202

Abstract: Abstract I study the effect of task difficulty on workers’ effort. I find that task difficulty has an inverse-U effect on effort and that this effect is quantitatively large, especially when compared to the effect of conditional monetary rewards. Difficulty acts as a mediator of monetary rewards: conditional rewards are most effective at the intermediate or high levels of difficulty. The inverse-U pattern of effort response to difficulty is inconsistent with many popular models in the literature, including the Expected Utility models with the additively separable cost of effort. I propose an alternative mechanism for the observed behavior based on non-linear probability weighting. I structurally estimate the proposed model and find that it successfully captures the behavioral patterns observed in the data. I discuss the implications of my findings for the design of optimal incentive schemes for workers and for the models of effort provision.

Keywords: Incentives; Task difficulty; Monetary rewards; Effort provision; Probability weighting (search for similar items in EconPapers)
JEL-codes: C91 D81 D91 J20 J33 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Give Me a Challenge or Give Me a Raise (2019)
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DOI: 10.1007/s10683-021-09709-8

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