Can Higher Bonuses Lead to Less Effort? Incentive Reversal in Teams

Esteban Klor (), Sebastian Kube, Eyal Winter () and Ro'i Zultan

No 5501, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Conventional wisdom suggests that an increase in monetary incentives should induce agents to exert higher effort. In this paper, however, we demonstrate that this may not hold in team settings. In the context of sequential team production with positive externalities between agents, incentive reversal might occur: an increase in monetary incentives (either because rewards increase or effort costs decrease) may lead agents to exert lower effort in the completion of a joint task – even if agents are fully rational, self-centered money maximizers. Herein we discuss this seemingly paradoxical phenomenon and report on two experiments that provide supportive evidence.

Keywords: laboratory experiments; externalities; team production; incentive reversal; incentives; personnel economics (search for similar items in EconPapers)
JEL-codes: C92 D23 J31 J33 J41 M12 M52 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011-02
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-exp and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published - published in: Journal of Economic Behavior & Organization, 2014, 97, 72-83

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https://docs.iza.org/dp5501.pdf (application/pdf)

Related works:
Working Paper: CAN HIGHER REWARDS LEAD TO LESS EFFORT? INCENTIVE REVERSAL IN TEAMS (2013)
Working Paper: Can Higher Bonuses Lead to Less E ort? Incentive Reversal in Teams (2011)
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