A New Approach to an Age-Old Problem: Solving Externalities by Incenting Workers Directly

83 Pages Posted: 20 Jun 2016  

Greer K Gosnell

London School of Economics & Political Science (LSE)

John A. List

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

Robert D. Metcalfe

University of Chicago - Becker Friedman Institute for Research in Economics

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Date Written: June 6, 2016

Abstract

Understanding motivations in the workplace remains of utmost import as economies around the world rely on increases in labor productivity to foster sustainable economic growth. This study makes use of a unique opportunity to “look under the hood” of an organization that critically relies on worker effort and performance. By partnering with Virgin Atlantic Airways on a field experiment that includes over 40,000 unique flights covering an eight-month period, we explore how information and incentives affect captains’ performance. Making use of more than 110,000 captain-level observations, we find that our set of treatments — which include performance information, personal targets, and prosocial incentives — induces captains to improve efficiency in all three key flight areas: pre-flight, in-flight, and post-flight. We estimate that our treatments saved between 266,000-704,000 kg of fuel for the airline over the eight-month experimental period. These savings led to between 838,000-2.22 million kg of CO2 abated at a marginal abatement cost of negative $250 per ton of CO2 (i.e. a $250 savings per ton abated) over the eight-month experimental period. Methodologically, our approach highlights the potential usefulness of moving beyond an experimental design that focuses on short-run substitution effects, and it also suggests a new way to combat firm-level externalities: target workers rather than the firm as a whole.

Keywords: Worker Incentives, Fuel Efficiency, Performance Feedback, Employee Effort, Information, Targets, Prosocial Incentives, Field Experiment, Aviation

JEL Classification: D01, J3, Q5, R4

Suggested Citation

Gosnell, Greer K and List, John A. and Metcalfe, Robert D., A New Approach to an Age-Old Problem: Solving Externalities by Incenting Workers Directly (June 6, 2016). Becker Friedman Institute for Research in Economics Working Paper No. 2016-16. Available at SSRN: https://ssrn.com/abstract=2798244

Greer K Gosnell

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

John A. List

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

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

Robert D. Metcalfe (Contact Author)

University of Chicago - Becker Friedman Institute for Research in Economics ( email )

Chicago, IL 60637
United States

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