Measuring Ratchet Effects within a Firm: Evidence from a Field Experiment Varying Contractual Commitment

15 Pages Posted: 11 Jun 2014

See all articles by Charles Bellemare

Charles Bellemare

Université Laval - Département d'Économique; Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE); IZA Institute of Labor Economics

Bruce Shearer

Université Laval - Département d'Économique; IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Abstract

We present results from a field experiment designed to measure the importance of managerial commitment to a contract within a firm that pays its workers piece rates. In the tree planting industry the piece rate paid to workers is determined as a function of the difficulty of the terrain to be planted. During the experiment, workers began planting a terrain at a trial piece rate, but were told this rate would be revised upwards if, after a few work days, average productivity was below that observed on a similar (control) terrain on which the firm had committed to the contract. Our results suggest that worker productivity was 20% to 40% lower in the absence of commitment. The reduction was less pronounced when workers had less time to benefit from any subsequent increase in the piece rate. This provides support for models of worker turnover as a means of overcoming ratchet effects.

Keywords: ratchet effect, piece rates, incentive contracts, field experiments

JEL Classification: J33, M52, C93

Suggested Citation

Bellemare, Charles and Shearer, Bruce, Measuring Ratchet Effects within a Firm: Evidence from a Field Experiment Varying Contractual Commitment. IZA Discussion Paper No. 8214, Available at SSRN: https://ssrn.com/abstract=2448790

Charles Bellemare (Contact Author)

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada

Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE)

Pavillon De Sève
Ste-Foy, Quebec G1K 7P4
Canada

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Bruce Shearer

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada
418-656-2131 (Phone)
418-656-7798 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
15
Abstract Views
219
PlumX Metrics