Team Incentives: Evidence from a Firm Level Experiment

49 Pages Posted: 28 Jan 2012

See all articles by Oriana Bandiera

Oriana Bandiera

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Iwan Barankay

University of Pennsylvania - Management Department; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Imran Rasul

University College London - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

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Abstract

Many organizations rely on teamwork, and yet field evidence on the impacts of team-based incentives remains scarce. Compared to individual incentives, team incentives can affect productivity by changing both workers' effort and team composition. We present evidence from a field experiment designed to evaluate the impact of rank incentives and tournaments on the productivity and composition of teams. Strengthening incentives, either through rankings or tournaments, makes workers more likely to form teams with others of similar ability instead of with their friends. Introducing rank incentives however reduces average productivity by 14%, whereas introducing a tournament increases it by 24%. Both effects are heterogeneous: rank incentives only reduce the productivity of teams at the bottom of the productivity distribution, and monetary prize tournaments only increase the productivity of teams at the top. We interpret these results through a theoretical framework that makes precise when the provision of team-based incentives crowds out the productivity enhancing effect of social connections under team production.

Keywords: teams, team-based incentives, rank incentives, tournaments

JEL Classification: D23, J33, M52

Suggested Citation

Bandiera, Oriana and Barankay, Iwan and Rasul, Imran, Team Incentives: Evidence from a Firm Level Experiment. IZA Discussion Paper No. 6279, Available at SSRN: https://ssrn.com/abstract=1994342

Oriana Bandiera (Contact Author)

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7519 (Phone)
+44 20 7055 6951 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Iwan Barankay

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Imran Rasul

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 20 7679 5853 (Phone)
+44 20 7916 2775 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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