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Menus of contracts determine sorting patterns

Mark Bernard, Thomas Dohmen (), Arjan Non and Ingrid Rohde

Journal of Economic Psychology, 2019, vol. 72, issue C, 293-311

Abstract: Using a real-effort task laboratory experiment, we investigate how the menu of available contracts affects worker self-selection into pay-for-performance contracts based on characteristics such as productivity and risk attitude. We provide evidence that the same contract attracts different types of workers for different sets of available alternatives. This insight, which is consistent with theoretical considerations, is crucial for organizations, because the type of workers that is attracted by a given incentive contract depends on the contracts offered by competing firms. Moreover, available alternative contracts determine the scope of worker types that can be attracted with a particular contract. Another implication is that organizations can design menus of contracts to induce fine-tuned multidimensional sorting patterns, which facilitates optimal assignment of workers to tasks.

Keywords: Incentives; Multidimensional sorting; Lab experiment (search for similar items in EconPapers)
JEL-codes: C91 D81 D82 J16 J31 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.joep.2019.04.004

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Handle: RePEc:eee:joepsy:v:72:y:2019:i:c:p:293-311