Incentive Magnitude, Reference Point Shifting and Intrinsic Motivation: A Laboratory Experiment
39 Pages Posted: 5 Sep 2018
Date Written: June 21, 2018
Despite the fact that much research has been devoted to understanding the effect of performance-contingent monetary incentives on individuals’ effort provision, little attention has been dedicated toward understanding whether a sequence of changes in the amount of piece rate an individual receives affects performance. In this paper we examine how effort provision of participants varies in a three-period laboratory setting in which different performance based compensation schemes are implemented for two differentiated tasks. The first task, consisting of downward counting from a big number while each time subtracting a fixed quantity, is considered relatively more challenging, while the second task consisting of counting the number of A’s in a paragraph is considered relatively less challenging.
Our findings are as follows:
(1) Performance contingent incentives affect participants’ effort provision.
(2) The effect is task dependent and it is much stronger for the less challenging task.
(3) A unique increase in the amount of piece rate leads to an increase in performance only in the less challenging task.
(4) A decrease in piece rate incentive negatively affects subjects’ performance on both tasks, but only provided that the decrease follows a previous increase.
Keywords: reference point, piece-rate, monetary incentives, intrinsic motivation
JEL Classification: D01, M52, J33
Suggested Citation: Suggested Citation