Pay Enough-Or Don't Pay at All

CentER Working Paper No. 1998-57

Posted: 16 Nov 1998

See all articles by Uri Gneezy

Uri Gneezy

University of California, San Diego (UCSD) - Rady School of Management

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics

Date Written: 1998

Abstract

Economics seems largely based on the assumption that monetary incentives improve performance. By contrast, a large literature in psychology, including a rich tradition of experimental work, claims just the opposite. In this paper we present and discuss a set of experiments designed to test the effect of different monetary compensations on performance. In our experiments we find that whenever money is offered, a larger amount yields a higher performance. It is not true, however, that offering money always induces a higher performance: participants who were offered a small payoff gave a worse performance than those who were offered no compensation at all. These results suggest that the behavior of participants is influenced by their perception of the contract that is offered to them. When the contract offers money the environment is perceived as monetary, and participants respond in a qualitatively different way in monetary and non-monetary environments. In a different set of experiments we test subjects who, acting as principals, have to provide the appropriate incentive to agents. We show that principals do not anticipate the drastic difference in behavior. The vast majority of principals seem to think incorrectly that a larger compensation is unambiguously a better incentive.

JEL Classification: D1, D8, D9

Suggested Citation

Gneezy, Uri and Rustichini, Aldo, Pay Enough-Or Don't Pay at All (1998). CentER Working Paper No. 1998-57. Available at SSRN: https://ssrn.com/abstract=138112

Uri Gneezy

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Aldo Rustichini (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,542
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information