Endogenous incentive contracts and efficient coordination

Cooper, David J., Ioannou, Christos A. and Qi, Shi (2018) Endogenous incentive contracts and efficient coordination. Games and Economic Behavior, 112. pp. 78-97. ISSN 0899-8256

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We examine the effects of endogenous assignment to incentive contracts on worker productivity. Assignment to high performance pay via a market mechanism is roughly twice as effective as imposing the same contract exogenously. This positive effect is largely offset by a negative effect for workers that endogenously choose low performance pay. We decompose the positive effect of endogenous assignment to high performance pay into effects due to selection and strategic anticipation, and find that selection has a greater effect than strategic anticipation. We use a Reverse Sort treatment to show that the effect of selection is sufficiently strong to overcome the direct effect of lower performance pay, yielding coordination at high effort levels in spite of low incentives.

Item Type: Article
Uncontrolled Keywords: experiment,coordination,incentive contracts,selection
Faculty \ School: Faculty of Social Sciences > School of Economics
UEA Research Groups: Faculty of Social Sciences > Research Groups > Behavioural Economics
Faculty of Social Sciences > Research Centres > Centre for Behavioural and Experimental Social Sciences
Depositing User: LivePure Connector
Date Deposited: 16 Aug 2018 09:32
Last Modified: 19 Apr 2023 15:31
URI: https://ueaeprints.uea.ac.uk/id/eprint/68069
DOI: 10.1016/j.geb.2018.07.008


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