Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/33245
Authors: 
Irlenbusch, Bernd
Sliwka, Dirk
Year of Publication: 
2005
Series/Report no.: 
IZA Discussion Papers 1758
Abstract: 
A simple principal agent problem is experimentally investigated in which a principal repeatedly sets a wage and an agent responds by choosing an effort level. The principal's payoff is determined by the agent's effort. In a first setting the principal can only set a fixed wage in each period. In a second setting the principal has the possibility to supplement the fixed wage with a piece rate. Surprisingly, efforts are lower in the case where piece rates can be paid. Furthermore, switching in the same treatment from a setting where piece rates are available to one where only fixed wages can be paid tends to lead to even lower effort levels. Based on our findings we suggest a new explanation for motivation crowding out by arguing that the use of piece rates considerably alters the principals' and agents' perception of the situation.
Subjects: 
incentives
crowding-out
reciprocity
reputation
experiment
JEL: 
C91
Document Type: 
Working Paper

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