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Volker Benndorf, Holger A. Rau and Christian Sölch

Economic Inquiry, 2019, vol. 57, issue 1, 206-226

Abstract: This paper shows that prior financial incentives induce a crowding‐out effect when incentives are discontinued. In our real‐effort experiment workers receive a piece rate before monetary incentives are substituted by a one‐time payment. In this case, workers' performance significantly drops when receiving the one‐time payment. The effect is driven by a fraction of men who reduce effort substantially, whereas women constantly perform well. We find that this motivational crowding‐out effect disappears when men do not have prior experience of a piece rate. In a series of control treatments, we discard several alternative explanations besides motivational crowding out. (JEL C91, J16, M54)

Date: 2019
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Handle: RePEc:bla:ecinqu:v:57:y:2019:i:1:p:206-226