Effort Choices between Group and Individual Tasks in Mixed Incentives

Abstract

Mixed individual and group incentives are widely used in practice under the assumption that by incentivizing both, organizations can increase total effort and predictably direct effort. The present paper explores these assumptions under two forms of mixed incentives, one in which incentives are implemented in a simultaneous/independent manner and the other in a sequential/dependent manner. Results suggest that adding individual incentives to group incentives motivates greater total effort, but adding group incentives to individual incentives does not regardless of the structure or amount of the mixed incentives. We also find that the independent mixed incentives in our setting lead individuals to allocate a greater (less) percentage of total effort to individual (group) tasks than the sequential mixed incentives. Our findings have important implications to incentive systems design by suggesting that organizations need to consider a fit between the incentives and where they would like their employees to allocate effort.

Keywords: Mixed Incentives, Group Incentives, Individual Incentives, Effort Allocation, Total Effort

JEL Classification: M40