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Give Me a Challenge or Give Me a Raise

Aleksandr Alekseev ()

Working Papers from Chapman University, Economic Science Institute

Abstract: I study the effect of task difficulty on workers' effort and compare it to the effect of monetary rewards in an incentivized lab experiment. I find that task difficulty has an inverse-U effect on effort, and that this effect is quantitatively large when compared to the effect of conditional monetary rewards. Difficulty acts as a mediator of monetary rewards: conditional rewards are most effective at the intermediate or high levels of difficulty. I show that the inverse-U pattern of effort response to difficulty is not consistent with the Expected Utility model but is consistent with the Rank-Dependent Utility model that allows for non-linear probability weighting. I structurally estimate the model and find that it successfully captures the treatment effects observed in the data. I discuss the implications of my findings for the design of optimal incentive schemes for workers and modeling effort.

Keywords: Incentives; Task difficulty; Monetary rewards; Effort Provision; Risk preferences; Probability weighting (search for similar items in EconPapers)
JEL-codes: C91 D91 D81 J20 J33 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-exp and nep-upt
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