Abstract

http://ssrn.com/abstract=2029434
 


 



Risk Aversion and Effort in an Incentive Pay Scheme with Multiplicative Noise: Theory and Experimental Evidence


Nick Zubanov


Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

March 20, 2012

ERIM Report Series Reference No. ERS-2012-005-STR

Abstract:     
The application of the classical "linear" model of incentive pay to the case when the noise is multiplicative to effort generates two predictions for a given strength of incentives: 1) more risk-averse workers will put in less effort, and 2) setting a performance target will weaken the negative risk aversion--effort link. The data from a real-effort laboratory experiment involving 85 student participants support both these predictions. Implications of the model and empirical findings to the literature on, and practice of, personnel management are discussed.

Number of Pages in PDF File: 30

Keywords: risk aversion, incentive pay, performance targets

JEL Classification: C91, M52, J33

working papers series


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Date posted: March 27, 2012  

Suggested Citation

Zubanov, Nick, Risk Aversion and Effort in an Incentive Pay Scheme with Multiplicative Noise: Theory and Experimental Evidence (March 20, 2012). ERIM Report Series Reference No. ERS-2012-005-STR. Available at SSRN: http://ssrn.com/abstract=2029434

Contact Information

Nick Zubanov (Contact Author)
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
HOME PAGE: http://www.eur.nl/ese/english/about_ese/staff/profiel_mis/10636/
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