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Incentives, Decision Frames, and Motivation Crowding Out - An Experimental Investigation

Bernd Irlenbusch
London School of Economics & Political Science - Department of Management; Institute for the Study of Labor (IZA)

Dirk Sliwka
University of Cologne - Seminar für ABWL und Personalwirtschaftslehre; Institute for the Study of Labor (IZA)


September 2005

IZA Discussion Paper No. 1758

Abstract:     
A simple principal agent problem is experimentally investigated in which a principal repeatedly sets a wage and an agent responds by choosing an effort level. The principal's payoff is determined by the agent's effort. In a first setting, the principal can only set a fixed wage in each period. In a second setting, the principal has the possibility to supplement the fixed wage with a piece rate. Surprisingly, efforts are lower in the case where piece rates can be paid. Furthermore, switching in the same treatment from a setting where piece rates are available to one where only fixed wages can be paid tends to lead to even lower effort levels. Based on our findings we suggest a new explanation for motivation crowding out by arguing that the use of piece rates considerably alters the principals' and agents' perception of the situation.

Keywords: incentives, crowding-out, reciprocity, reputation, experiment

JEL Classifications: C91

Working Paper Series

Date posted: October 15, 2005 ; Last revised: October 25, 2005

Suggested Citation

Irlenbusch, Bernd and Sliwka, Dirk, Incentives, Decision Frames, and Motivation Crowding Out - An Experimental Investigation (September 2005). IZA Discussion Paper No. 1758. Available at SSRN: http://ssrn.com/abstract=822866


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Contact Information

Bernd Irlenbusch (Contact Author)
London School of Economics & Political Science - Department of Management ( email )
Houghton Street
London WC2A 2AE
United Kingdom
+44 (0)20 7955 7840 (Phone)
+44 (0)20 7955 6887 (Fax)
HOME PAGE: http://www.lse.ac.uk/collections/management/
Institute for the Study of Labor (IZA)
P.O. Box 7240
D-53072 Bonn Germany
Dirk Sliwka
University of Cologne - Seminar für ABWL und Personalwirtschaftslehre ( email )
50923 Koln Germany
Institute for the Study of Labor (IZA)
P.O. Box 7240
D-53072 Bonn Germany
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