Sticks and Carrots in Procurement

Maria Bigoni, Giancarlo Spagnolo and Paola Valbonesi

No 105, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: We study differently framed incentives in dynamic laboratory buyer-seller relationships with multi-tasking and endogenous matching. The experimental design tries to mitigate the role of social preferences and intrinsic motivation. Absent explicit incentives, effort is low in both tasks. Their introduction boosts efficiency substantially increasing effort in the contractible task, mildly crowding it out in the non-contractible one, and increasing buyer surplus. Bonuses and penalties are equivalent for efficiency and crowding-out, but different in distributional effects: sellers' surplus increases with bonuses as buyers' offers become more generous. Buyers tend to prefer penalties, which may explain why they are dominant in procurement.

Keywords: bonuses; business-to-business; contract choice; experiment; framing; explicit incentives; incomplete contracts; loss-aversion; motivation; penalties; procurement; multi-tasking; relational contracts; rewards. (search for similar items in EconPapers)
JEL-codes: C92 H57 L14 M52 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2010-01
New Economics Papers: this item is included in nep-cbe, nep-cta and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Sticks and Carrots in Procurement (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0105

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