The Power of Incentives

30 Pages Posted: 13 May 2022

See all articles by Aleksandr Alekseev

Aleksandr Alekseev

University of Regensburg - Department of Economics and Econometrics

Date Written: April 20, 2022

Abstract

I study an optimal design of monetary incentives in experiments where incentives are a treatment variable. I introduce the Budget Minimization problem in which a researcher chooses the level of incentives that allows her to detect a predicted treatment effect while minimizing her expected budget. The Budget Minimization problem builds upon the power analysis and structural modeling. It extends the standard optimal design approach by explicitly making the budget a part of the objective function. I show theoretically that the problem has an interior solution under fairly mild conditions. I illustrate the applications of the Budget Minimization problem using existing experiments and offer a practical guide for implementing it. My approach adds to the experimental economists’ toolkit for an optimal design, however, it also challenges some conventional design recommendations.

Keywords: incentives, economic experiments, experimental design, power analysis, sample size, effect size

JEL Classification: C9, D9

Suggested Citation

Alekseev, Aleksandr, The Power of Incentives (April 20, 2022). Available at SSRN: https://ssrn.com/abstract=4088605 or http://dx.doi.org/10.2139/ssrn.4088605

Aleksandr Alekseev (Contact Author)

University of Regensburg - Department of Economics and Econometrics ( email )

Universitaetsstrasse 31
D-93040 Regensburg
Germany

HOME PAGE: http://https://aalexee.com

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