Sorting, Incentives and Risk Preferences: Evidence from a Field Experiment

Charles Bellemare () and Bruce S. Shearer

Cahiers de recherche from CIRPEE

Abstract: The, often observed, positive correlation between incentive intensity and risk has been explained in two ways: the presence of transaction costs as determinants of contracts and the sorting of risk-tolerant individuals into firms using high-intensity incentive contracts. The empirical importance of sorting is perhaps best evaluated by directly measuring the risk tolerance of workers who have selected into incentive contracts under risky environments. We use experiments, conducted within a real firm, to measure the risk preferences of a sample of workers who are paid incentive contracts and face substantial daily income risk. Our experimental results indicate the presence of sorting; Workers in our sample are risk-tolerant. Moreover, their level of tolerance is considerably higher than levels observed for samples of individuals representing broader populations. Interestingly, the high level of risk tolerance suggests that both sorting and transaction costs are important determinants of contract choices when workers have heterogeneous preferences.

Keywords: Risk aversion; sorting; incentive contracts; field experiments (search for similar items in EconPapers)
JEL-codes: J33 M52 C93 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-fmk and nep-upt
Date: 2006
View list of references View citations in EconPapers

Downloads: (external link)
http://www.cirpee.org/fileadmin/documents/Cahiers_2006/CIRPEE06-31.pdf (application/pdf)

Related works:
Working Paper: Sorting, Incentives and Risk Preferences: Evidence from a Field Experiment (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:lvl:lacicr:0631

Access Statistics for this paper

More papers in Cahiers de recherche from CIRPEE
Contact information at EDIRC.
Series data maintained by Johanne Perron ().