Incentives, Decision Frames, and Motivation Crowding Out – An Experimental Investigation

Bernd Irlenbusch () and Dirk Sliwka

No 1758, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 (search for similar items in EconPapers)
JEL-codes: C91 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2005-09
New Economics Papers: this item is included in nep-cbe and nep-exp
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Citations: View citations in EconPapers (31)

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