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A carrot, a stick, or a relative piece-rate: an experimental study

Author

Listed:
  • Yuri Khoroshilov

    (University of Ottawa)

  • Anna Dodonova

    (University of Ottawa)

Abstract

Using an experimental setting, this paper investigates people's preferences over, and performance of, three compensation contracts: relative bonus-based, relative penalty-based, and relative piece-rate (RPR) contracts. It finds that, given the same expected payoff, most subjects prefer a bonus-based contract, followed by RPR, with the penalty-based being the least preferred choice. While evaluating efficiency, we find that bonus-based compensation results in the worst performance, while the performance levels under penalty-based and RPR contracts are virtually identical.

Suggested Citation

  • Yuri Khoroshilov & Anna Dodonova, 2021. "A carrot, a stick, or a relative piece-rate: an experimental study," Economics Bulletin, AccessEcon, vol. 41(3), pages 1481-1485.
    • Handle: RePEc:ebl:ecbull:eb-21-00872
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2021/Volume41/EB-21-V41-I3-P127.pdf
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    References listed on IDEAS

    as
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    5. Agranov, Marina & Tergiman, Chloe, 2013. "Incentives and compensation schemes: An experimental study," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 238-247.
    6. Dodonova, Anna & Khoroshilov, Yuri, 2014. "Compensation and performance: An experimental study," Economics Letters, Elsevier, vol. 124(2), pages 304-307.
    7. R. Lynn Hannan & Vicky B. Hoffman & Donald V. Moser, 2005. "Bonus versus Penalty: Does Contract Frame Affect Employee Effort?," Springer Books, in: Amnon Rapoport & Rami Zwick (ed.), Experimental Business Research, chapter 0, pages 151-169, Springer.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Compensation contract; Incentive contract; Experimental study; Relative Compensation;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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