Performance Pay, Group Selection and Group Performance

33 Pages Posted: 19 Apr 2007

See all articles by Manfred Königstein

Manfred Königstein

University of Erfurt

Gabriele K. Lünser

University College London - Centre for Economic Learning and Social Evolution (ELSE)

Date Written: March 2007

Abstract

Within a laboratory experiment we investigate a principal-agent game in which agents may, first, self-select into a group task (GT) or an individual task (IT) and, second, choose work effort. In their choices of task and effort the agents have to consider pay contracts for both tasks as offered by the principal. The rational solution of the game implies that contract design may not induce agents to select GT and provide positive effort in GT. Furthermore it predicts equal behavior of agents with different productivities. In contrast, considerations of trust, reciprocity and cooperation - the social-emotional model of behavior - suggest that contract design can influence the agents' willingness to join groups and provide effort. We analyze the data by applying a two-step regression model (multinomial logit and tobit) and find that counter to the rational solution, contract design does influence both, task selection and effort choice. The principal can increase participation in work groups and can positively influence group performance. Larger payment increases the share of socially motivated agents in work groups. The selection effect is larger than the motivation effect.

Keywords: principal-agent, experiment, work group, selection, motivation

JEL Classification: M5, J3, C7, C9

Suggested Citation

Königstein, Manfred and Lünser, Gabriele K., Performance Pay, Group Selection and Group Performance (March 2007). IZA Discussion Paper No. 2697. Available at SSRN: https://ssrn.com/abstract=981175

Manfred Königstein (Contact Author)

University of Erfurt ( email )

Internationales Buro
Nordhaeuser Str. 63
D - 99089 Erfurt
Germany

Gabriele K. Lünser

University College London - Centre for Economic Learning and Social Evolution (ELSE) ( email )

Gower Street
London WC1E 6BT
United Kingdom

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