Incentives, Decision Frames, and Motivation Crowding Out - an Experimental Investigation

36 Pages Posted: 15 Oct 2005

See all articles by Bernd Irlenbusch

Bernd Irlenbusch

London School of Economics & Political Science - Department of Management; IZA Institute of Labor Economics

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management; IZA Institute of Labor Economics

Date Written: September 2005

Abstract

A simple principal agent problem is experimentally investigated in which a principal repeatedly sets a wage and an agent responds by choosing an effort level. The principal's payoff is determined by the agent's effort. In a first setting, the principal can only set a fixed wage in each period. In a second setting, the principal has the possibility to supplement the fixed wage with a piece rate. Surprisingly, efforts are lower in the case where piece rates can be paid. Furthermore, switching in the same treatment from a setting where piece rates are available to one where only fixed wages can be paid tends to lead to even lower effort levels. Based on our findings we suggest a new explanation for motivation crowding out by arguing that the use of piece rates considerably alters the principals' and agents' perception of the situation.

Keywords: incentives, crowding-out, reciprocity, reputation, experiment

JEL Classification: C91

Suggested Citation

Irlenbusch, Bernd and Sliwka, Dirk, Incentives, Decision Frames, and Motivation Crowding Out - an Experimental Investigation (September 2005). IZA Discussion Paper No. 1758. Available at SSRN: https://ssrn.com/abstract=822866

Bernd Irlenbusch (Contact Author)

London School of Economics & Political Science - Department of Management ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)20 7955 7840 (Phone)
+44 (0)20 7955 6887 (Fax)

HOME PAGE: http://www.lse.ac.uk/collections/management/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management ( email )

Koln, 50923
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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