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Title:On the Hidden Costs of Incentive Schemes PDF Logo
Authors:Sliwka, Dirk
Issue Date:2003
Series/Report no.:IZA Discussion paper series 844
Abstract:By enriching a principal-agent model it is shown that the introduction of monetary incentives may reduce an agent?s motivation. In a first step, we allow for the possibility that some agents stick to unverifiable agreements. The larger the fraction of reliable agents, the lower powered will then be the optimal incentive scheme and fixed wages become optimal when performance measurement is costly. If social norms matter such that some agents? reliability is influenced by their beliefs on the convictions of others, high powered incentives signal that not sticking to agreements is a widespread behavior and may lead to lower effort levels.
Subjects:incentives
intrinsic motivation
motivation crowding-out
honesty
JEL:J33
M52
D23
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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