what is the standard econ assumption
selfish
unboundedly rational
what is piece rate incentive
how do people response to simple incentivies piece rates
- worker and employee - paid p for every unit produced
- employee exerts effort = costly - they choose effort level where MC=MB = standard econ
- this is an experiment to induce cost of effort function for their participants and generate data needed to estimate pf so they can predict chosen effort levels
Gachter 2015
effort task experiment
- slider where people catch money
- clicking = effort - costs 5
- catching = reward - 20
- have cost of effort and return of effort
results from money catcher experiment = ball catching task
- varying cost and prize while holding ratio constant = doesnt affect clicks
- increasing cost of click = reduce clicks
- increasing prize = increase clicks
- when cost is 0 = increasing prize doesnt change clicks
- this matches standard econ theory that as cost of effort increases, effort decreases
- rational payoff maximisation yields predicted effort levels that are consistent with the data
the ball catch experiment in teams
- teams of 4
- prize of catch 20 paid into team account which is split in the end - individual prize for one catch = 5
- incur cost yourself = 5
play for 10 periods - compare clicks to if playing youself and prize is 20 and cost 5
- playing self and prize and cost 5
- the predicted clicks = 33, 8
results from team catch
graphically compared clicks per period with when they werent in team 20,5 and when not in team 5,5
- see how it compares = are they selfish / thinking as a group
- people are not fully selfish or coop - lie in the middle
- cooperation declines
Gachter
Gift exchange game
- worker and firm
- firm = wage between 0-1000
- worker does ball catch task
- prize = 50 paid to firm
- firms earnings = amount - wage + (prize money from catch)
- workers earnings = amount + wage - (cost of click)
- cost of effort = convex
- compare strangers and partners results 10 periods
why is it useful to use stranger and partner
can track if mutual agreement of trust forms
- if worker respondes by increasing effort to generous firm offers
- stranger = cant respond to each others wages
results from stranger gift exchange
stranger
- wage and catch relationship = upward sloping
- wage and clicks = upward
- effort cant respond to wage because only 1 shot game
partner
- employee can reward with higher wage - worker can put in more effort
- evidence that effort responds to wage
- reciprocal gifting relationship
reference dependent preferences in Taxi drivers
- variable hourly wage rate = standard theory = increase hours - tradeoff wage and leisure
- temporarily wage increase
- taxi wages vary = weather
- rent their cabs
- choose how many hours to work each day
- have sheets that fully document hours and earnings
Camerer 1997
taxi results
- inverse relationship between hours and wage
- higher wage = less hours
- reference depepenedent
- reach target
- loss averse - dont want to be below target
- narrow bracketers - make decisions one day at a time
Camerer 1997
taxi results
- inverse relationship between hours and wage
- higher wage = less hours
- reference depepenedent
- reach target
- loss averse - dont want to be below target
- narrow bracketers - make decisions one day at a time
Dupas 2020
kenyan bike drivers
- ask what their cash needs are
- observed how often they quit relative to this target reference
- havent met target - quiting is unlikely
- once reached - prob of quitting increases
why bike and taxi are bad
doenst tell us if reference dependent is a cause
- need experiements
- maybe because of weather or other reasons
- maybe because they asked them about their wage target they focused on it more
Fehr 2007
2 field experiements
bike couriers in Zurich
- get paid w of the revenue they bring in - revenue = effort - they choose how many jobs to accept on the day
- choose hours they want to work at home online
- earnings vary
Fehr what is experiment 1
and results
- gave a temporary wage - 25% +
- measure their labour supply response = standard = more hours and exert more effort
- assigned 44 couriers into 2 groups A and B
- first period only group A get the raise
- second only group B
- control is period before
- in each treatment period group with higher wage = less effort compared to other group
- group with higher wage works more shifts
- even when controlling for some being better than others
Fehr experiment 2
and results
- how come work more shifts
- but less effort
- is this due to reference dependent preferences?
- experiment to split courriers into those that are loss averse and not = loss averse have reference dependent preferences - these will drive the lower effort
- compare to see if loss averse people are causing lower effort
- shifts = both types increase their shifts (dont narrow bracket)
- effort = couriers that are loss averse decrease their effort while wage is increased
what is wrong with assuming self interest when designing policies
- assuming people are selfish is bad sometimes
- have to include the idea of moral sentiments = social preferences are important
- do policy designs that are made to make selfish people do the right thing crowd out social preferences - give reason to do the wrong thing
- dont have perfect information cant work out the extranalities and punish the certain individuals through taxation
- also have to consider the other people this policy will effect
- does telling people to do the right thing crowd out willingness to do good
Gneezy 2000 - day care
results
- fining people that collect their child late
- experiment - what is the effect of inducing a fine have on the number of late arrivals
- treatment group = no fine, fine, no fine
- control = no fine whole time
- control no. late = constant
- treatment = no fine = same as above , fine = increases, after fine = stays high
- introducing the fine moves the relationship from a relationship based of good will to transactional
- price makes it seem less bad
Fehr 2003
trust
are fines a good way to enforce behaviour
- using fine to enforce trustworthiness
- hostile incentive destroys voluntary cooperation
- if you dont trust me ill act more untrustworthy
- investor and trustee recieve 10
- investor can send any amount - investor says how much he wants back - this is tripled and given to trustee who can sent back however much
- trust condition
- incentive condition = can fine if they send back less
results from
trustee and investor
trust and incentive condition
- the more the investors sends the trustee the more the trustee sends back
- fine incentive: sends less back when threatened with fine = crowding out effect
- no fine incentive : sends the most back - they could have fined me but didnt = average transfer increases
- same results amongst students and CEOS
how does incentives interact with social prefernces
- incentives cause people to behave more selfish = day care fine
- make relationship turn into transcational
- if you impose fine makes me think you think im untrustworthy = more bad behaviour
- need to work with this in policies
