Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes

Omar Al-Ubaydli, Steffen Andersen, Uri Gneezy, John A. List

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Constructing compensation schemes for effort in multi-dimensional tasks is complex, particularly when some dimensions are not easily observable. When incentive schemes contractually reward workers for easily observed measures, such as quantity produced, the standard model predicts that unrewarded dimensions, such as quality, will be neglected. Yet, there remains mixed empirical evidence in favor of this standard principal-agent model prediction. This paper reconciles the literature by using both theory and empirical evidence. The theory outlines conditions under which principals can use a piece rate scheme to induce higher quantity and quality levels than analogous fixed wage schemes. Making use of a series of complementary laboratory and field experiments we show that this effect occurs because the agent is uncertain about the principal’s monitoring ability and the principal’s choice of a piece rate signals to the agent that she is efficient at monitoring.
Constructing compensation schemes for effort in multi-dimensional tasks is complex, particularly when some dimensions are not easily observable. When incentive schemes contractually reward workers for easily observed measures, such as quantity produced, the standard model predicts that unrewarded dimensions, such as quality, will be neglected. Yet, there remains mixed empirical evidence in favor of this standard principal-agent model prediction. This paper reconciles the literature by using both theory and empirical evidence. The theory outlines conditions under which principals can use a piece rate scheme to induce higher quantity and quality levels than analogous fixed wage schemes. Making use of a series of complementary laboratory and field experiments we show that this effect occurs because the agent is uncertain about the principal’s monitoring ability and the principal’s choice of a piece rate signals to the agent that she is efficient at monitoring.
LanguageEnglish
JournalSouthern Economic Journal
Volume81
Issue number3
Pages538-561
Number of pages24
ISSN0038-4038
DOIs
StatePublished - 2015

Keywords

  • Gift Exchange
  • Piece Rate
  • Incentives

Cite this

Al-Ubaydli, Omar ; Andersen, Steffen ; Gneezy, Uri ; List, John A./ Carrots that Look Like Sticks : Toward an Understanding of Multitasking Incentive Schemes. In: Southern Economic Journal. 2015 ; Vol. 81, No. 3. pp. 538-561
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Carrots that Look Like Sticks : Toward an Understanding of Multitasking Incentive Schemes. / Al-Ubaydli, Omar; Andersen, Steffen; Gneezy, Uri; List, John A.

In: Southern Economic Journal, Vol. 81, No. 3, 2015, p. 538-561.

Research output: Contribution to journalJournal articleResearchpeer-review

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