Self-Selection and the Power of Incentive Schemes: An Experimental Study

Tinbergen Institute Discussion Paper No. 10-074/1

33 Pages Posted: 30 Jul 2010

See all articles by Jana Vyrastekova

Jana Vyrastekova

Radboud University Nijmegen - Department of Economics

Sander Onderstal

University of Amsterdam; Tinbergen Institute

Pierre Koning

CPB Netherlands Bureau of Economic Policy Analysis

Date Written: July 29, 2010

Abstract

We examine how self-selection of workers into firms depends on the power of the firms' incentive schemes and how it affects the performance of firms that increase the power of the incentive schemes. In a laboratory experiment, we let subjects choose between (low-powered) team incentives and (high-powered) individual incentives. We observe that subjects exhibiting high trust or reciprocity in the trust game are more likely to choose team incentives. When exposed to individual incentives, workers who chose team incentives perform worse if both the unobservable interdependency between workers and their incentive to cooperate under team incentives are high.

Keywords: Incentive Scheme, Self-Selection, Laboratory Experiment

JEL Classification: C91, J33, M52

Suggested Citation

Vyrastekova, Jana and Onderstal, Sander and Koning, Pierre, Self-Selection and the Power of Incentive Schemes: An Experimental Study (July 29, 2010). Tinbergen Institute Discussion Paper No. 10-074/1, Available at SSRN: https://ssrn.com/abstract=1650635 or http://dx.doi.org/10.2139/ssrn.1650635

Jana Vyrastekova (Contact Author)

Radboud University Nijmegen - Department of Economics ( email )

Nijmegen, 6500 HK
Netherlands

Sander Onderstal

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Pierre Koning

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands
+31 703383380 (Phone)
+31 703383350 (Fax)

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