Reference Points, Performance and Ability: A Real Effort Experiment on Framed Incentive Schemes

Katharina Hilken (), Stephanie Rosenkranz, Kris De Jaegher and M. Jegers

No 13-15, Working Papers from Utrecht School of Economics

Abstract: The paper investigates the effect of four differently framed payment contracts on the agent's effort provision and performance in a real effort experiment. The four incentive payments are framed as a base wage and bonuses (one immediately pays bonuses, the other only after an initial performance-independent part), penalties or a combination of bonuses and penalties. The base wage that is offered, induces the reference point. The participants provide real effort and are paid for finding pairs in a customized Memory game. The bonus-only frame elicits the highest effort, whereas frames with penalties lag behind. Ability positively complements the effect of effort on performance. The combination of penalties and bonuses minimises the costs of the principal only for low levels of performance employing heterogeneous agents. For higher performance levels, framing a base wage with bonuses is cost-effective.

Keywords: Real Effort Experiment; Optimal Payment Scheme; Principal-Agent Relationship; Ability; Bonus; Penalty (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-exp, nep-hrm, nep-lma and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://dspace.library.uu.nl/bitstream/handle/1874/309447/13_15.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:use:tkiwps:1315

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Utrecht School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Marina Muilwijk ().