Can higher rewards lead to less effort? Incentive reversal in teams

Klor, E.F. and Kube, S. and Winter, E. and Zultan, R. (2014) Can higher rewards lead to less effort? Incentive reversal in teams. Journal of Economic Behavior and Organization, 97. pp. 72-83. ISSN 0167-2681

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Abstract

Conventional wisdom suggests that a global increase in monetary rewards should induce agents to exert higher effort. In this paper we demonstrate that this may not hold in team settings. In the context of sequential team production with positive externalities between agents, incentive reversal might occur, i.e., an increase in monetary rewards (either because bonuses increase or effort costs decrease) may induce agents that are fully rational, self-centered money maximizers to exert lower effort in the completion of a joint task. Incentive reversal happens when increasing one agent's individual rewards alters her best-response function and, as a result, removes other agents' incentives to exert effort as their contributions are no longer required to incentivize the first agent. Herein we discuss this seemingly paradoxical phenomenon and report on two experiments that provide supportive evidence. © 2013 Elsevier B.V.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Economic Behavior and Organization
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
126911
Deposited By:
Deposited On:
14 Aug 2018 14:06
Refereed?:
Yes
Published?:
Published
Last Modified:
09 Sep 2020 05:10