Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282750 
Year of Publication: 
2023
Series/Report no.: 
IZA Discussion Papers No. 16623
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Freedom of choice is often thought to improve efficiency. We experimentally investigate the effect of giving workers a choice between compensation schemes with and without a CSR component (CSR/NoCSR) on labor market participation decision and work performance, compared to the alternative of exogenous assignment. Classical economic theory suggests that giving workers a choice should not reduce their performance. Our results show that there are hidden costs associated with the right of choice. When a worker is allowed to choose his or her compensation scheme, the labor market participation rate is significantly lower than when the same scheme is exogenously assigned. Work quality is also significantly lower for those who choose CSR, as well as for those who choose no CSR, than for those who are exogenously assigned to the same scheme.We propose a model of signaling with image concerns to explain why the freedom of choice may induce reduced participation and effort exertion of workers.
Subjects: 
choice
signaling
image concerns
corporate social responsibility
labor
experiment
JEL: 
M14
J01
C9
M52
Document Type: 
Working Paper

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