Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes

28 Pages Posted: 13 Oct 2012 Last revised: 24 Oct 2012

See all articles by Omar Al-Ubaydli

Omar Al-Ubaydli

George Mason University - Department of Economics; Derasat; George Mason University - Mercatus Center

Steffen Andersen

Copenhagen Business School - Department of Finance; CEPR

Uri Gneezy

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

John A. List

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: October 2012

Abstract

Constructing compensation schemes for effort in multi-dimensional tasks is complex, particularly when some dimensions are not easily observable. When incentive schemes contractually reward workers for easily observed measures, such as quantity produced, the standard model predicts that unrewarded dimensions, such as quality, will be neglected. Yet, there remains mixed empirical evidence in favor of this standard principal-agent model prediction. This paper reconciles the literature by using both theory and empirical evidence. The theory outlines conditions under which principals can use a piece rate scheme to induce higher quantity and quality levels than analogous fixed wage schemes. Making use of a series of complementary laboratory and field experiments we show that this effect occurs because the agent is uncertain about the principal's monitoring ability and the principal's choice of a piece rate signals to the agent that she is efficient at monitoring.

Suggested Citation

Al-Ubaydli, Omar and Andersen, Steffen and Gneezy, Uri and List, John A., Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes (October 2012). NBER Working Paper No. w18453, Available at SSRN: https://ssrn.com/abstract=2161200

Omar Al-Ubaydli (Contact Author)

George Mason University - Department of Economics ( email )

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Derasat ( email )

Bahrain

George Mason University - Mercatus Center ( email )

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Steffen Andersen

Copenhagen Business School - Department of Finance ( email )

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CEPR ( email )

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Uri Gneezy

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

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Rady School of Management
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John A. List

University of Chicago - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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