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Title:Inducing good behavior: Bonuses versus fines in inspection games PDF Logo
Authors:Nosenzo, Daniele
Offerman, Theo
Sefton, Martin
van der Veen, Ailko
Issue Date:2010
Series/Report no.:CeDEx discussion paper series 2010-21
Abstract:We examine the effectiveness of bonuses and fines in an inspection game where an employer can learn the effort of a worker through costly inspection. Standard game theoretic analysis predicts that fines discourage shirking, whereas bonuses encourage shirking. In contrast, ownpayoff effects suggest that both fines and bonuses discourage shirking. In an experiment we find that fines are more effective than bonuses in reducing shirking. However, we do not find that bonuses encourage shirking. Behavioral theories based on Impulse Balance Equilibrium or Quantal Response Equilibrium provide a good account of deviations from Nash equilibrium predictions.
Subjects:inspection games
costly monitoring
rewards and punishments
bonuses and fines
quantal response equilibrium
impulse balance equilibrium
experiment
JEL:C70
C72
C92
Document Type:Working Paper
Appears in Collections:CeDEx Discussion Paper Series, The University of Nottingham

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