A carrot, a stick, or a relative piece-rate: an experimental study

Yuri Khoroshilov () and Anna Dodonova ()
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Yuri Khoroshilov: University of Ottawa
Anna Dodonova: University of Ottawa

Economics Bulletin, 2021, vol. 41, issue 3, 1481-1485

Abstract: Using an experimental setting, this paper investigates people's preferences over, and performance of, three compensation contracts: relative bonus-based, relative penalty-based, and relative piece-rate (RPR) contracts. It finds that, given the same expected payoff, most subjects prefer a bonus-based contract, followed by RPR, with the penalty-based being the least preferred choice. While evaluating efficiency, we find that bonus-based compensation results in the worst performance, while the performance levels under penalty-based and RPR contracts are virtually identical.

Keywords: Compensation contract; Incentive contract; Experimental study; Relative Compensation (search for similar items in EconPapers)
JEL-codes: C9 J3 (search for similar items in EconPapers)
Date: 2021-09-17
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