The Effects of Group Incentives in an Indian Firm - Evidence from Payroll Data

Debashish Bhattacherjee

No 03-14, Working Papers from University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: This paper estimates the effects of group incentives on productivity, pay and employment in a large unionised firm in India. Using plant-level monthly time series data from the payroll office for the period 1985-95, and controlling for both (plant) fixed effects and (contract) time effects, the paper provides econometric evidence on the effectiveness of both the level and intensity of incentive pay on the outcome measures. In addition, the relative performance of two types of group incentives defined on the basis of group size is also analysed. At the firm level, the results generally confirm predictions from theory that productivity returns to centives are non-linear and concave in shape and that the effectiveness of incentives is decreasing in group size. I argue that the latter is most likely due to the lessening of the free-rider problem and the increased effectiveness of peer/mutual monitoring associated with smaller groups. The results also point to a negative relationship between the level of incentives and employment over time.

Keywords: Group Incentives; Compensation; Free Riding; Peer Monitoring; Trade Unions; India (search for similar items in EconPapers)
JEL-codes: C22 C23 J33 J51 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2003-01-17
New Economics Papers: this item is included in nep-lab
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Journal Article: The Effects of Group Incentives in an Indian Firm: Evidence from Payroll Data (2005)
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