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Abstract:
We present results from a field experiment testing the gift-exchange hypothesis inside a tree-planting firm paying its workforce incentive contracts. Firm managers told a crew of tree planters they would receive a pay raise for one day as a result of a surplus not attributable to past planting productivity. We compare planter productivity - the number of trees planted per day - on the day the gift was handed out with productivity on previous and subsequent days of planting on the same block, and thus under similar planting conditions. We find direct evidence that the gift had a significant and positive effect on daily planter productivity, controlling for planter-fixed effects, weather conditions and other random daily shocks. Moreover, reciprocity is the strongest when the relationship between planters and the firm is longterm.

reciprocity, gift exchange, incentive contracts, field experiments

Abstract:
We present results from a field experiment testing the gift-exchange hypothesis inside a tree-planting firm paying its workforce incentive contracts. Firm managers told a crew of tree planters they would receive a pay raise for one day as a result of a surplus not attributable to past planting productivity. We compare planter productivity - the number of trees planted per day - on the day the gift was handed out with productivity on previous and subsequent days of planting on the same block, and thus under similar planting conditions. We find direct evidence that the gift had a significant and positive effect on daily planter productivity, controlling for planter-fixed effects, weather conditions and other random daily shocks. Moreover, reciprocity is the strongest when the relationship between planters and the firm is long term.

Reciprocity, gift exchange, incentive contracts, field experiments

Abstract:
We analyse how physicians respond to contractual changes and incentives within a multitasking environment. In 1999 the Quebec government (Canada) introduced an optional mixed compensation system, combining a fixed per diem with a discounted (relative to the traditional fee-for-service system) fee for services provided. We combine panel survey and administrative data on Quebec physicians to evaluate the impact of this change in incentives on their practice choices. We highlight the differentiated impact of incentives on various dimensions of physicians behaviour by considering a wide range of labour supply variables: time spent on seeing patients, time devoted to teaching, administrative tasks or research, as well as the volume of clinical services and average time per clinical service. Our results show that, on average, the reform induced physicians who changed from FFS to MC to reduce their volume of (billable) services by 6.15% and to reduce their hours of work spent on seeing patients by 2.57%. Their average time spent per service increased by 3.58%, suggesting a potential quality-quantity substitution. Also the reform induced these physicians these increase their time spent on teaching and administrative duties (tasks not remunerated under the fee-for-service system) by 7.9%.

Physician payment mechanisms, multitasking, mixed-payment systems, incentive contracts, labour supply, self-selection, panel estimation

Abstract:
We present results from a real-effort experiment, simulating actual work-place conditions, comparing the productivity of workers under fixed wages and piece rates. Workers, who were paid to enter data, were exposed to different degrees of peer pressure under both payment systems. The peer pressure was generated in the form of private information about the productivity of their peers. We have two main results. First, we find no level of peer pressure for which the productivity of either male or female workers is significantly higher than productivity without peer pressure. Second, we find that very low and very high levels of peer pressure can significantly decrease productivity (particularly for men paid fixed wages). These results are consistent with models of conformism and self-motivation.

peer effects, fixed wages, piece rates, gender

Abstract:
The, often observed, positive correlation between incentive intensity and risk has been explained in two ways: the presence of transaction costs as determinants of contracts and the sorting of risk-tolerant individuals into firms using high-intensity incentive contracts. The empirical importance of sorting is perhaps best evaluated by directly measuring the risk tolerance of workers who have selected into incentive contracts under risky environments. We use experiments, conducted within a real firm, to measure the risk preferences of a sample of workers who are paid incentive contracts and face substantial daily income risk. Our experimental results indicate the presence of sorting; workers in our sample are risk-tolerant. Moreover, their level of tolerance is considerably higher than levels observed for samples of individuals representing broader populations. Interestingly, the high level of risk tolerance suggests that both sorting and transaction costs are important determinants of contract choices when workers have heterogeneous preferences.

risk aversion, sorting, incentive contracts, field experiments

Abstract:
We investigate the efficiency of piece-rate contracts using data from a field experiment, conducted within a tree-planting firm. During the experiment, the piece rate paid to planters was exogenously increased. Regression methods yield an estimate of the elasticity of output with respect to changes in the piece rate of 0.39. Regression methods are limited in their ability to predict the performance of alternative contracts. Therefore, we apply structural methods to interpret the experimental data. Our structural estimate of the elasticity is 0.37, very close to the regression estimate. Importantly, our structural model is identified without imposing profit maximization. This allows us to evaluate the optimality of the observed contract. We simply measure the profit distance between the observed contract and the profit-maximizing contract, evaluated at the structural parameter estimates. We estimate this distance to be negligible, suggesting that the observed contract closely approximates the expected-profit maximizing contract under asymmetric information. Under complete information, expected profits would increase by approximately fourteen percent, holding expected utility constant.

Incentives, Contractual Efficiency, Field Experiments

Abstract:
We analyse how physicians respond to contractual changes and incentives within a multitasking environment. In 1999 the Quebec government (Canada) introduced an optional mixed compensation system, combining a fixed per diem with a discounted (relative to the traditional fee-for-service system) fee for services provided. We combine panel survey and administrative data on Quebec physicians to evaluate the impact of this change in incentives on their practice choices. We highlight the differentiated impact of incentives on various dimensions of physician behaviour by considering a wide range of labour supply variables: time spent on seeing patients, time devoted to teaching, administrative tasks or research, as well as the volume of clinical services and average time per clinical service. Our results show that, on average, the reform induced physicians who changed from FFS to MC to reduce their volume of (billable) services by 6.15% and to reduce their hours of work spent on seeing patients by 2.57%. Their average time spent per service increased by 3.58%, suggesting a potential quality-quantity substitution. Also the reform induced these physicians to increase their time spent on teaching and administrative duties (tasks not remunerated under the fee-for-service system) by 7.9%.

physician payment mechanisms, multitasking, mixed-payment systems, incentive contracts, labour supply, self-selection, panel estimation

Abstract:
Data from a field experiment are used to estimate the gain in productivity that is realized when workers are paid piece rates rather than fixed wages. The experiment was conducted within a tree-planting firm and provides daily observations on individual worker productivity under both compensation systems. Unrestricted statistical methods estimate the productivity gain to be 20%. Since planting conditions potentially affect incentives, structural econometric methods are used to generalize the experimental results to out-of-sample conditions. The structural results suggest that the average productivity gain, outside of the experimental conditions, would be at least 21.7%.

Abstract:
We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural econometric model that identifies workers' optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments, both conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labour-market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers' outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labour markets by up to 10% on average and by up to 17% for certain types of workers. These gifts represent significant increases in worker earnings; the average gift paid to workers attains 22% of average expected earnings in the absence of gifts. We find that gifts should be given by setting piece-rates above the market-clearing level rather than through fixed wages.

gift giving, structural models, field experiments

Abstract:
We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural econometric model that identifies workers’ optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments, both conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labour-market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers’ outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labour markets by up to 10% on average and by up to 17% for certain types of workers. These gifts represent significant increases in worker earnings; the average gift paid to workers attains 22% of average expected earnings in the absence of gifts. We find that gifts should be given by setting piece-rates above the market-clearing level rather than through fixed wages.

gift giving, structural models, field experiments

Abstract:
We consider the response to incentives as an explanation for productivity differences within a firm that paid its workers piece rates. We provide a framework within which observed productivity differences can be decomposed into two parts: one due to differences in ability and the other due to differences in the response to incentives. We apply this decomposition to male and female workers from a tree-planting firm in the province of British Columbia, Canada. We provide evidence that individuals do react differently to incentives. However, while the women in our sample reacted slightly more to incentives than did the men, the average difference is not statistically significant. The productivity differential that men enjoyed arose because of differences in ability, strength in our application.

Productivity, Gender, Compensation, Incentives

Abstract:
We develop and estimate an agency model of worker behavior under piece rates and fixed wages. The model implies optimal decision rules for the firm's choice of a compensation system as a function of working conditions. Our model also implies an upper and lower bound to the incentive effect (the productivity gain realized by paying workers piece rates rather than fixed wages) that can be estimated using regression methods. Using daily productivity data collected from the payroll records of a British Columbia tree-planting firm, we estimate these bounds to be an 8.8 and a 60.4 percent increase in productivity. Structural estimation, which accounts for the firm?s optimal choice of a compensation system, suggests that incentives caused a 22.6 percent increase in productivity. However, only part of this increase represents valuable output because workers respond to incentives, in part, by reducing quality.

Abstract:
This paper uses data on the wages received by piece-rate workers to estimate worker productivity profiles. The data were collected from the payroll records of a British Columbia copper mine. The advantage of these data is the close link between observed wages and worker productivity. An explicit model is used to control for worker effort as a function of observable worker characteristics and the parameters of the compensation system. The model implies a censored wage distribution, the parameters of which can be estimated using well-known econometric techniques. Semi-parametric estimation allows for the relaxation of the distributional assumptions of the model. Results suggest that while productivity profiles were increasing concave functions of tenure, they were also very flat. I relate these results to historical arguments on the skill-saving nature of technological change in the mining industry at the end of the nineteenth century.