Monetary and Non-Monetary Incentives in Real-Effort Tournaments

42 Pages Posted: 14 Sep 2017  

Nisvan Erkal

The University of Melbourne - Faculty of Business and Economics

Lata Gangadharan

Monash University

Boon Han Koh

The University of Melbourne - Department of Economics

Date Written: September 08, 2017

Abstract

Results from laboratory experiments using real-effort tasks provide mixed evidence on the relationship between monetary incentives and effort provision. To examine this issue, we design three experiments where subjects participate in two-player real-effort tournaments with two prizes. Experiment 1 shows that subjects exert high effort even if there are no monetary incentives, suggesting that non-monetary incentives are contributing to their effort choices. Moreover, increasing monetary incentives does not result in higher effort provision. Experiment 2 shows that the impact of non-monetary incentives can be reduced by providing subjects with the option of leaving the laboratory early, using an incentivized timeout button, or working on an incentivized alternative activity. Experiment 3 revisits the relationship between monetary incentives and effort provision using the insights from Experiment 2. Using a design with an incentivized alternative activity, we show that participants increase effort in response to monetary incentives. Taken together, the findings from the three experiments suggest that results from real-effort tasks require a careful evaluation and interpretation of the motivations underlying the observed performance.

Keywords: Real-effort tasks; Laboratory experiments; Contests; Non-monetary incentives; Monetary incentives

JEL Classification: C90; D01; J30

Suggested Citation

Erkal, Nisvan and Gangadharan, Lata and Koh, Boon Han, Monetary and Non-Monetary Incentives in Real-Effort Tournaments (September 08, 2017). Available at SSRN: https://ssrn.com/abstract=3035906 or http://dx.doi.org/10.2139/ssrn.3035906

Nisvan Erkal (Contact Author)

The University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia
+61 3 8344 3307 (Phone)
+61 3 8344 6899 (Fax)

HOME PAGE: http://www.nisvanerkal.net

Lata Gangadharan

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Boon Han Koh

The University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

HOME PAGE: http://www.boonhankoh.net/

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