Relative and Absolute Incentives: Evidence on Worker Productivity

Oriana Bandiera, Iwan Barankay (barankay@wharton.upenn.edu) and Imran Rasul

No 4431, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use personnel data to compare worker productivity under a relative incentive scheme, where worker pay is negatively related to the average productivity of co-workers, with productivity under piece rates ? where pay is based on individual productivity alone. We find that for the average worker, productivity is at least 50% higher under piece rates. We show this is because workers partially internalize the negative externality they impose on others under the relative incentive scheme and do so to a greater extent when they work alongside their close friends. The results illustrate the importance of understanding how workers behave in the presence of externalities when designing incentive schemes.

Keywords: Absolute incentives; Relative incentives; Social preferences (search for similar items in EconPapers)
JEL-codes: J33 (search for similar items in EconPapers)
Date: 2004-06
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Citations: View citations in EconPapers (13)

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