The Effectiveness of Incentive Schemes in the Presence of Implicit Effort Costs

31 Pages Posted: 27 Feb 2017

See all articles by Sebastian J. Goerg

Sebastian J. Goerg

Florida State University - Department of Economics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Sebastian Kube

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Bonn

Jonas Radbruch

IZA

Abstract

Agents' decisions to exert effort depends on the provided incentives as well as the potential costs for doing so. So far most of the attention has been on the incentive side. However, our lab experiments underline that both the incentive and cost side can be used separately to shape work performance. In our experiment, subjects work on a real-effort task. Between treatments, we vary the incentive scheme used for compensating workers. Additionally, by varying the available outside options, we explore the role of implicit costs of effort in determining workers' performance. We observe that incentive contracts and implicit costs interact in a non-trivial manner. Performance reacts significantly to changes in implicit effort costs under low-powered piece-rate and target-based bonus contracts, but not under a high piece rate contract. In addition, comparisons between the incentive schemes depend crucially on the implicit costs.

Keywords: workers' performance, work environments, implicit cost, opportunity costs, incentive schemes

JEL Classification: C91, D01, D03, D24, J22, J24, J33, L23, M52

Suggested Citation

Goerg, Sebastian J. and Kube, Sebastian and Radbruch, Jonas, The Effectiveness of Incentive Schemes in the Presence of Implicit Effort Costs. IZA Discussion Paper No. 10546. Available at SSRN: https://ssrn.com/abstract=2923629

Sebastian J. Goerg (Contact Author)

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States
+1 (850) 644-7083 (Phone)

HOME PAGE: http://www.s-goerg.de

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

HOME PAGE: http://www.coll.mpg.de

Sebastian Kube

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

University of Bonn

BWL 1
Adenauerallee 24-42
Bonn, D-53012
Germany

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