Watching or not watching? Access to information and the incentive effects of firing threats

Jordi Brandts, Brice Corgnet, Roberto Hernán-González, José Mª Ortiz and Carles Solà
Authors registered in the RePEc Author Service: Roberto Hernán González

Journal of Economic Behavior & Organization, 2021, vol. 189, issue C, 672-685

Abstract: A common rationale for the use of salary contracts is that they can produce substantial incentive effects when coupled with firing threats. However, enforcing firing threats may require close supervision of employees, thus possibly offsetting the very reasons salaries are commonly used, such as lowering monitoring costs and granting autonomy to employees. We design a series of experiments to study the effectiveness of firing threats when only limited information is available to supervisors. We show that light and unobtrusive supervision can produce large incentive effects. Compared to salary contracts, firing threats based on observing organizational performance alone increase employees’ output by 70% whereas only observing how long an employee works doubles output. These findings show that salaries can produce large incentive effects even in the absence of intensive supervision. Finally, we show that salary contracts with firing threats perform at least as well as other popular incentive schemes, such as bonuses, individual and team incentives, that rely on a similar amount of information about employees.

Keywords: Firing threats; Incentives; Monitoring; Laboratory experiments (search for similar items in EconPapers)
JEL-codes: C92 D23 D82 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268121003073
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Watching or Not Watching? Access to Information and the Incentive Effects of Firing Threats (2018)
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: https://EconPapers.repec.org/RePEc:eee:jeborg:v:189:y:2021:i:c:p:672-685

DOI: 10.1016/j.jebo.2021.07.019

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().