Incentive Complexity, Bounded Rationality and Effort Provision

Johannes Abeler, David Huffman and Colin Raymond

No 1012, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Using field and laboratory experiments, we demonstrate that the complexity of incentive schemes and worker bounded rationality can affect effort provision, by shrouding attributes of the incentives. In our setting, complexity leads workers to over-provide effort relative to a fully rational benchmark, and improves efficiency. We identify con tract features, and facets of worker cognitive ability, that matter for shrouding. We find that even relatively small degrees of shrouding can cause large shifts in behavior. Our results illustrate important implications of complexity for designing and regulating workplace incentive contracts.

Date: 2023-06-07
New Economics Papers: this item is included in nep-cta, nep-exp and nep-hrm
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Working Paper: Incentive Complexity, Bounded Rationality and Effort Provision (2023)
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