The (Statistical) Power of Incentives

32 Pages Posted: 13 May 2022 Last revised: 10 Jul 2023

See all articles by Aleksandr Alekseev

Aleksandr Alekseev

University of Regensburg - Department of Economics and Econometrics

Date Written: July 7, 2023

Abstract

I study the optimal design of monetary incentives in experiments where incentives are a treatment variable. I propose a novel framework called 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 incorporating the budget as a part of the objective function. I prove theoretically that the problem has an interior solution under fairly mild conditions. To showcase the practical applications of the Budget Minimization problem, I provide examples of its implementation in several well-known experiments. I also offer a practical guide to assist researchers in utilizing the proposed framework. The Budget Minimization problem contributes 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 (Statistical) Power of Incentives (July 7, 2023). 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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