Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278982 
Year of Publication: 
2023
Series/Report no.: 
IZA Discussion Papers No. 16284
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Using field and laboratory experiments, we demonstrate that the complexity of incentive schemes and worker bounded rationality can affect effort provision, by shrouding attributes of the incentives. In our setting, complexity leads workers to over-provide effort relative to a fully rational benchmark, and improves efficiency. We identify contract features, and facets of worker cognitive ability, that matter for shrouding. We find that even relatively small degrees of shrouding can cause large shifts in behavior. Our results illustrate important implications of complexity for designing and regulating workplace incentive contracts.
Subjects: 
complexity
bounded rationality
shrouded attribute
ratchet effect
dynamic incentives
field experiments
JEL: 
D8
D9
J2
J3
Document Type: 
Working Paper

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