Incentives and Ratcheting in a Multiproduct Firm: A Field Experiment

Francisco Brahm () and Joaquin Poblete ()
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Francisco Brahm: Judge Business School, University of Cambridge, Cambridge CB2 1AG, United Kingdom; School of Management, Pontificia Universidad Católica de Chile, Macul, Santiago 7820436, Chile
Joaquin Poblete: School of Management, Pontificia Universidad Católica de Chile, Macul, Santiago 7820436, Chile

Management Science, 2018, vol. 64, issue 10, 4552-4571

Abstract: We develop a model and derive behavioral predictions for a multiproduct sales force subject to goals set based on past performance. We test these predictions using a field experiment in which 53 salespersons from a Chilean beverage company face exogenous variations in monthly sales goals. Confirming our predictions, we found that (1) absent strategic considerations—no goal ratcheting—salespersons increase (decrease) sales in the product category for which the return to effort increases (decreases), (2) including strategic considerations behavior reverses: salespersons who expect high goal ratcheting decrease (increase) sales in the category for which the return to effort increases (decreases), (3) sales did not change for the average salespersons, reflecting heterogeneity in the expectations of goal ratcheting rather than unresponsiveness to incentives. Our study points at the importance of the dynamics of incentive design, in particular, the importance of understanding the dynamics of goal setting in firms.

Keywords: incentives; strategic behavior; ratchet effect; field experiment (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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