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

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

Research output: Working paperResearch

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
Place of PublicationCambridge, MA
PublisherNational Bureau of Economic Research (NBER)
Number of pages25
StatePublished - 2012
SeriesNational Bureau of Economic Research. Working Paper Series
Number18453
ISSN0898-2937

Keywords

  • Gift Exchange
  • Piece Rate
  • Incentives

Cite this

Al-Ubaydli, O., Andersen, S., Gneezy, U., & List, J. A. (2012). Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes. Cambridge, MA: National Bureau of Economic Research (NBER). National Bureau of Economic Research. Working Paper Series, No. 18453
Al-Ubaydli, Omar ; Andersen, Steffen ; Gneezy, Uri ; List, John A./ Carrots that Look Like Sticks : Toward an Understanding of Multitasking Incentive Schemes. Cambridge, MA : National Bureau of Economic Research (NBER), 2012. (National Bureau of Economic Research. Working Paper Series; No. 18453).
@techreport{2a7ad66128234ab392a682289c30993c,
title = "Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes",
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.",
keywords = "Gift Exchange, Piece Rate, Incentives, Gift Exchange, Piece rate, Incentives",
author = "Omar Al-Ubaydli and Steffen Andersen and Uri Gneezy and List, {John A.}",
year = "2012",
language = "English",
publisher = "National Bureau of Economic Research (NBER)",
address = "United States",
type = "WorkingPaper",
institution = "National Bureau of Economic Research (NBER)",

}

Al-Ubaydli, O, Andersen, S, Gneezy, U & List, JA 2012 'Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes' National Bureau of Economic Research (NBER), Cambridge, MA.

Carrots that Look Like Sticks : Toward an Understanding of Multitasking Incentive Schemes. / Al-Ubaydli, Omar; Andersen, Steffen; Gneezy, Uri; List, John A.

Cambridge, MA : National Bureau of Economic Research (NBER), 2012.

Research output: Working paperResearch

TY - UNPB

T1 - Carrots that Look Like Sticks

T2 - Toward an Understanding of Multitasking Incentive Schemes

AU - Al-Ubaydli,Omar

AU - Andersen,Steffen

AU - Gneezy,Uri

AU - List,John A.

PY - 2012

Y1 - 2012

N2 - 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.

AB - 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.

KW - Gift Exchange

KW - Piece Rate

KW - Incentives

KW - Gift Exchange

KW - Piece rate

KW - Incentives

M3 - Working paper

BT - Carrots that Look Like Sticks

PB - National Bureau of Economic Research (NBER)

CY - Cambridge, MA

ER -

Al-Ubaydli O, Andersen S, Gneezy U, List JA. Carrots that Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes. Cambridge, MA: National Bureau of Economic Research (NBER). 2012.