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Carrots That Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes
Author(s) -
AlUbaydli Omar,
Andersen Steffen,
Gneezy Uri,
List John A.
Publication year - 2015
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-2013.248
Subject(s) - human multitasking , incentive , principal (computer security) , compensation (psychology) , quality (philosophy) , principal–agent problem , field (mathematics) , scheme (mathematics) , piece work , computer science , wage , empirical evidence , microeconomics , econometrics , economics , empirical research , cognitive psychology , psychology , mathematics , social psychology , statistics , computer security , management , labour economics , corporate governance , philosophy , mathematical analysis , epistemology , pure mathematics
Constructing compensation schemes for effort in multidimensional tasks is complex, particularly when some dimensions are not easily observable. When incentive schemes contractually reward workers for easily observed measures, such as quantity produced, the standard model predicts that unrewarded dimensions, such as quality, will be neglected. Yet, there remains mixed empirical evidence in favor of this standard principal‐agent model prediction. This article reconciles the literature using both theory and empirical evidence. The theory outlines conditions under which principals can use a piece rate scheme to induce higher quantity and quality levels than analogous fixed wage schemes. Making use of a series of complementary laboratory and field experiments we show that this effect occurs because the agent is uncertain about the principal's monitoring ability and the principal's choice of a piece rate signals to the agent that she is efficient at monitoring.