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Carrots That Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes

Omar Al-Ubaydli (), Steffen Andersen (), Uri Gneezy and John List ()
Additional contact information
Omar Al-Ubaydli: Research Department, Bahrain Center for Strategic, International and Energy Studies, PO Box 496, Manama, Kingdom of Bahrain; and Department of Economics and Mercatus Center, George Mason University, 4400 University Drive, Fairfax VA, 22030, USA

Southern Economic Journal, 2015, vol. 81, issue 3, 538-561

Abstract: Constructing compensation schemes for effort in multidimensional tasks is complex, particularly when some dimensions are not easily observable. When incentive schemes contractually reward workers for easily observed measures, such as quantity produced, the standard model predicts that unrewarded dimensions, such as quality, will be neglected. Yet, there remains mixed empirical evidence in favor of this standard principal-agent model prediction. This article reconciles the literature using both theory and empirical evidence. The theory outlines conditions under which principals can use a piece rate scheme to induce higher quantity and quality levels than analogous fixed wage schemes. Making use of a series of complementary laboratory and field experiments we show that this effect occurs because the agent is uncertain about the principal's monitoring ability and the principal's choice of a piece rate signals to the agent that she is efficient at monitoring.

JEL-codes: D63 D82 J3 (search for similar items in EconPapers)
Date: 2015
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http://dx.doi.org/10.4284/0038-4038-2013.248

Related works:
Working Paper: Carrots That Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes (2012) Downloads
Working Paper: Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes (2012) Downloads
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