Incentivizing Learning-by-Doing: The Role of Compensation Schemes

58 Pages Posted: 21 May 2019

See all articles by Joshua Graff Zivin

Joshua Graff Zivin

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS); National Bureau of Economic Research (NBER)

Lisa Kahn

Yale School of Management

Matthew Neidell

Columbia University; University of Chicago - Department of Economics and CISES; PERC - Property and Environment Research Center

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Abstract

In this paper, we examine the impact of pay-for-performance incentives on learning-by-doing. We exploit personnel data on fruit pickers paid under two distinct compensation contracts: a standard piece rate plan and a piece rate plan with an extra one-time bonus tied to output. Under the bonus contract, we observe bunching of performance just above the bonus threshold, suggesting workers distort their behavior in response to the discrete bonus. Such bunching behavior increases as workers gain experience. At the same time, the bonus contract induces considerable learning-by-doing for workers throughout the productivity distribution, and these improvements significantly outweigh the losses to the firm from the distortionary bunching. In contrast, under the standard piece rate contract, we find minimal evidence of bunching and only small performance improvements at the bottom of the productivity distribution. Our results suggest that contract design can help foster learning on the job. This underscores the importance of dynamic considerations in principal-agent models.

Keywords: contracts, learning-by-doing

JEL Classification: J33, J43

Suggested Citation

Graff Zivin, Joshua and Kahn, Lisa and Neidell, Matthew, Incentivizing Learning-by-Doing: The Role of Compensation Schemes. IZA Discussion Paper No. 12320. Available at SSRN: https://ssrn.com/abstract=3390309

Joshua Graff Zivin (Contact Author)

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States

National Bureau of Economic Research (NBER)

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Lisa Kahn

Yale School of Management ( email )

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Matthew Neidell

Columbia University ( email )

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University of Chicago - Department of Economics and CISES ( email )

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Chicago, IL 60637
United States

PERC - Property and Environment Research Center

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Suite A
Bozeman, MT 59718
United States

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