Abstract not found

The economics of organizations is replete with the pitfalls of monetary rewards and punishments to motivate workers. If economic incentives do not work, what does? This paper proposes that workers’ self-image as jobholders, coupled with their ideal as to how their job should be done, can be a major work incentive. It shows how such identities can flatten reward schedules, as they solve the “principal-agent” problem. The paper also identifies and explores a new tradeoff: supervisors may provide information to principals, but create rifts within the workforce and reduce employees ’ intrinsic work incentives. We motivate the theory with examples from the classic sociology of military and civilian organizations.

We present evidence on whether workers have social preferences by comparing workers ’ productivity under relative incentives, where individual effort imposes a negative externality on others, to their productivity under piece rates, where it does not. We find that the productivity of the average worker is at least 50 percent higher under piece rates than under relative incentives. We show that this is due to workers partially internalizing the negative externality their effort imposes on others under relative incentives, especially when working alongside their friends. Under piece rates, the relationship among workers does not affect productivity. Further analysis reveals that workers internalize the externality only when they can monitor others and be monitored. This rules out pure altruism as the underlying motive of workers ’ behavior. We have benefited from discussions with Heski Bar-Isaac, V. Bhaskar, Timothy Besley, Marianne Bertrand,

The relationship between financial incentives and performance, long of interest to social scientists, has gained new relevance with the advent of web-based “crowd-sourcing ” models of production. Here we investigate the effect of compensation on performance in the context of two experiments, conducted on Amazon’s Mechanical Turk (AMT). We find that increased financial incentives increase the quantity, but not the quality, of work performed by participants, where the difference appears to be due to an “anchoring ” effect: workers who were paid more also perceived the value of their work to be greater, and thus were no more motivated than workers paid less. In contrast with compensation levels, we find the details of the compensation scheme do matter—specifically, a “quota ” system results in better work for less pay than an equivalent “piece rate ” system. Although counterintuitive, these findings are consistent with previous laboratory studies, and may have real-world analogs as well.

We develop a theory of prosocial behavior that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. Rewards or punishments (whether material or imagerelated) create doubt about the true motive for which good deeds are performed and this “overjustification effect” can induce a partial or even net crowding out of prosocial behavior by extrinsic incentives. We also identify the settings that are conducive to multiple social norms and more generally those that make individual actions complements or substitutes, which we show depends on whether stigma or honor is (endogenously) the dominant reputational concern. Finally, we analyze the socially optimal level of incentives and how monopolistic or competitive sponsors depart from it. Sponsor competition is shown to potentially reduce social welfare.

This work is distributed as a Discussion Paper by the

Economists have written extensively on this question, often focusing on various types of incentive pay contracts aimed at eliciting greater effort from employees. This theoretical research identifies features of employment relationships that limit the effectiveness of simple piece-rate incentive pay plans and that force managers to consider other forms of incentive pay. In addition, managers introduce other human resource management practices, concerning employee training, hiring criteria, teamwork, job design, and employee hierarchies, that are aimed at eliciting optimal performance (see reviews in Gibbons, 1998; Gibbons and Waldman, 1999; Lazear, 1999; Murphy, 1999; and Prendergast, 1999). Still, without empirical evidence on businesses ’ human resource practices, it will remain an open question whether the theories proposed in “personnel economics [are] real or merely a series of clever models proposed by abstract thinkers who have little contact with reality ” (Lazear, 1999). In this study, we describe a new research approach – an approach we label “insider econometrics ” – that is aimed at producing empirical estimates of the value of alternative human resource management practices. This “insider ” approach goes deep

Employees are motivated intrinsically as well as extrinsically. Intrinsic motivation is crucial when tacit knowledge in and between teams must be transferred. Organizational forms enable different kinds of motivation and have different capacities to generate and transfer tacit knowledge. Since knowledge generation and transfer are essential for a firm s sustainable competitive advantage, we ask specifically what kinds of motivation are needed to generate and transfer tacit knowledge, as opposed to explicit knowledge.

In the formative stages of their businesses, entrepreneurs have to provide incentives for employees to protect, rather than steal, the source of organizational rents. We study how the entrepreneur’s response to this problem determines the organization’s internal structure, growth, and its eventual size. Large, steep hierarchies will predominate in physical-capital-intensive industries, and will have seniority-based promotion policies. By contrast, at hierarchies will prevail in human-capital-intensive industries and will have up-or-out promotion systems. Furthermore, at hierarchies will have more distinctive technologies or cultures than steep hierarchies. The model points to some essential differences between organized hierarchies and markets. At the root of most enterprises generating economic surplus is an entrepreneur with a unique critical resource such as an idea, good customer relationships, a new tool, or superior man-agement technique. A fundamental problem of entrepreneurship is how to enlist the cooperation of the many agents necessary for production without ceding to them too much of the surplus gen-erated by the enterprise. The risk of being expropriated, however, is always inherent in production. In particular, the entrepreneur has to give her employees (whom we call managers) close prox-imity or access to the critical resource for them to learn to produce effectively. For example, a manager has to understand the idea, be in contact with the key customers and suppliers, or even learn the entrepreneur’s unique managerial techniques, in order to work effectively. But access also gives the manager the opportu-nity to expropriate this critical resource and compete against the entrepreneur. Managers may steal the idea, walk away with clients, or mimic the entrepreneur’s management style, and start up a rival concern. The greater the access a manager has, the more he can appropriate, and the more effectively he can com-pete. This paper explores the role of organizational design in

Due to incomplete contracts, efficiency of an organization depends on willingness of individuals to take non‐selfish actions, such as cooperating when there is no incentive to do so or punishing inefficient actions by others. Organizations also constitute a social boundary, or group. We investigate whether this social aspect of organizations has an important benefit— fostering unselfish cooperation and norm enforcement within the group—but also whether there is a dark side, in the form of hostility between groups. Our experiment provides the first evidence free from the confounding effect of self‐selection into groups. Individuals are randomly assigned to different platoons during a four‐week period of officer training in the Swiss Army. We conduct choice experiments—simultaneous prisoner’s dilemma games, with and without third‐party punishment—in week three. Random assignment significantly increases willingness to cooperate with fellow platoon members. Assignment does not lead to hostility, in the sense of vindictive punishment of outsiders, but does affect norm enforcement, enhancing willingness to enforce a norm of cooperation towards fellow platoon members. This suggests that the social aspect of organizations motivates efficient behavior even when ordinary incentives fail and helps to explain practices designed to foster social ties or group identification