Loading...
Pay Enough - Or Don't Pay at All
Gneezy,U. Rustichini,A.
Gneezy,U.
Rustichini,A.
Abstract
Abstract: Economics seems largely based on the assumption that monetary incentives improve performance. By contrast, a large literature in psychology, including a rich tradition of experimental work, claims just the opposite. In this paper we present and discuss a set of experiments designed to test the effect of different monetary compensations on performance. In our experiments we find that whenever money is offered, a larger amount yields a higher performance. It is not true, however, that offering money always induces a higher performance: participants who were offered a small payoff gave a worse performance than those who were offered no compensation at all. These results suggest that the behavior of participants is influenced by their perception of the contract that is offered to them. When the contract offers money the environment is perceived as monetary, and participants respond in a qualitatively different way in monetary and non-monetary environments. In a different set of experiments we test subjects who, acting as principals, have to provide the appropriate incentive to agents. We show that principals do not anticipate the drastic difference in behavior. The vast majority of principals seem to think incorrectly that a larger compensation is unambiguously a better incentive.
Description
Pagination: 34
Date
1998
Journal Title
Journal ISSN
Volume Title
Publisher
Microeconomics
Files
Loading...
57.pdf
Adobe PDF, 105.83 KB
Research Projects
Organizational Units
Journal Issue
Keywords
Monetary incentives, performance, motivation, principal-agent, D1 - Household Behavior and Family Economics, D8 - Information, Knowledge, and Uncertainty, D9 - Micro-Based Behavioral Economics
Citation
Gneezy, U & Rustichini, A 1998 'Pay Enough - Or Don't Pay at All' CentER Discussion Paper, vol. 1998-57, Microeconomics, Tilburg.