The Impact of Formal and Social Incentives on Teams: Micro-Evidence From Retail

53 Pages Posted: 7 Jul 2021 Last revised: 29 Jun 2023

See all articles by Francisco Brahm

Francisco Brahm

London Business School

Antoine Feylessoufi

University of Cambridge - Judge Business School; University College London; University College London - School of Management

Marcos Singer

Pontificia Universidad Católica de Chile

Date Written: February 23, 2022

Abstract

The impact of formal incentives on team productivity is not fully understood. A handful of field experiments have documented either a small or a null impact of formal incentives on teams, but do not unpack the mechanisms at play. Consistent with previous literature, we find that formal incentives improve productivity by 20% on individuals but has a null effect on teams. We calibrate a theoretical model to show that the null effect on teams is not because formal incentives lose their effectiveness in teams—in fact, they boost productivity via effort complementarity. The null effect emerges because teams with weak formal incentives display larger social incentives than teams with strong formal incentives. Social incentives seem to be triggered when teams face more productive rivals.

Keywords: effort complementarity, free-riding, monitoring, pay for performance, productivity, social incentives, teams.

Suggested Citation

Brahm, Francisco and Feylessoufi, Antoine and Singer, Marcos, The Impact of Formal and Social Incentives on Teams: Micro-Evidence From Retail (February 23, 2022). Available at SSRN: https://ssrn.com/abstract=3872735 or http://dx.doi.org/10.2139/ssrn.3872735

Francisco Brahm (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
07464696706 (Phone)

HOME PAGE: http://https://www.london.edu/faculty-and-research/faculty-profiles/f/francisco-brahm

Antoine Feylessoufi

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

University College London - School of Management ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Marcos Singer

Pontificia Universidad Católica de Chile ( email )

Av Libertador General Bernardo O'Higgins 340
Santiago, Región Metropolitana 8331150
Chile

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