Working Paper: CEPR ID: DP4431
Authors: Oriana Bandiera; Iwan Barankay; Imran Rasul
Abstract: We use personnel data to compare worker productivity under a relative incentive scheme, where worker pay is negatively related to the average productivity of co-workers, with productivity under piece rates ? where pay is based on individual productivity alone. We find that for the average worker, productivity is at least 50% higher under piece rates. We show this is because workers partially internalize the negative externality they impose on others under the relative incentive scheme and do so to a greater extent when they work alongside their close friends. The results illustrate the importance of understanding how workers behave in the presence of externalities when designing incentive schemes.
Keywords: absolute incentives; relative incentives; social preferences
JEL Codes: J33; M52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| change in incentive schemes (M52) | worker productivity (J29) |
| relative incentive scheme (J33) | worker productivity (J29) |
| piece rates (J33) | worker productivity (J29) |
| presence of friends in group (C92) | productivity under relative incentives (D29) |
| presence of friends in group (C92) | productivity under piece rates (J33) |