Is There a 'Hidden Cost' of Control in Naturally-Occurring Markets? Evidence from a Natural Field Experiment
23 Pages Posted: 5 Sep 2011
Date Written: July 8, 2011
Several recent laboratory experiments have shown that the use of explicit incentives - such as conditional rewards and punishment - entail considerable “hidden” costs. The costs are hidden in the sense that they escape our attention if our reasoning is based on the assumption that people are exclusively self-interested. This study represents a first attempt to explore whether, and to what extent, such considerations affect equilibrium outcomes in the field. Using data gathered from nearly 3000 households, we find little support for the negative consequences of control in naturally-occurring labor markets. In fact, even though we find evidence that workers are reciprocal, we find that worker effort is maximized when we use conditional - not unconditional - rewards to incent workers.
Keywords: labor markets, public goods, field experiments, charitable fund-raising, worker productivity, reciprocity
JEL Classification: C93, H41, J20, L30
Suggested Citation: Suggested Citation