Don’t Ask Me If You Will Not Listen: The Dilemma of Participative Decision Making

We study the effect of participative decision making in an experimental principalagent game, where the principal can consult the agent’s preferred option regarding the task to be undertaken in the final stage of the game. We show that consulting the agent was beneficial to principals as long as they followed the agent’s choice. Ignoring the agent’s choice was detrimental to the principal as it engendered negative emotions and low levels of transfers. Nevertheless, the majority of principals were reluctant to change their mind and adopt the agent’s proposal. Our results suggest that the ability to change one’s own mind is an important dimension of managerial success

Why Real Leisure Really Matters: Incentive Effects on Real Effort in the Laboratory

On-the-job leisure is a pervasive feature of the modern workplace. We studied its impact on work performance in a laboratory experiment by either allowing or restricting Internet access. We used a 2x2 experimental design in which subjects completing real-effort work tasks could earn cash according to either individual- or team-production incentive schemes. Under team pay, production levels were significantly lower when Internet browsing was available than when it was not. Under individual pay, however, no differences in production levels were observed between the treatment in which Internet was available and the treatment in which it was not. In line with standard incentive theory, individual pay outperformed team pay across all periods of the experiment when Internet browsing was available. This was not the case, however, when Internet browsing was unavailable. These results demonstrate that the integration of on-the-job leisure activities into an experimental labor design is crucial for uncovering incentive effects

Firing Threats and Tenure: Incentive Effects and Impression Management

We study the effect of firing threats and tenure in a virtual workplace that reproduces features of existing organizations. We show that organizations in which bosses can fire up to one third of their workforce produce twice more than organizations for which firing is not possible. Firing threats sharply decrease on-the-job leisure activities. Nevertheless, organizations endowed with firing threats significantly underperformed those using individual incentives. Our analysis also indicates that, in the presence of firing threats, employees engage in impression management activities in order to be seen as hard-working individuals. These results are consistent with the predictions of our theoretical model in which workers aim at signaling a high level of intrinsic motivation to increase their chance of obtaining tenure. Finally, we show that production levels dropped substantially under tenure while on-the-job leisure surged

Why Real Leisure Really Matters: Incentive Effects on Real Effort in the Laboratory

On-the-job leisure is a pervasive feature of the modern workplace. We studied its impact on work performance in a laboratory experiment by either allowing or restricting Internet access. We used a 2×2 experimental design in which subjects completing real-effort work tasks could earn cash according to either individual- or team-production incentive schemes. Under team pay, production levels were significantly lower when Internet browsing was available than when it was not. Under individual pay, however, no differences in production levels were observed between the treatment in which Internet was available and the treatment in which it was not. In line with standard incentive theory, individual pay outperformed team pay across all periods of the experiment when Internet browsing was available. This was not the case, however, when Internet browsing was unavailable. These results demonstrate that the integration of on-the-job leisure activities into an experimental labor design is crucial for uncovering incentive effects

Firing Threats: Incentive Effects and Impression Management

We study the effect of firing threats in a virtual workplace that reproduces features of existing organizations. We show that organizations in which bosses can fire up to one third of their workforce produce twice as much as organizations for which firing is not possible. Firing threats sharply decrease on-the-job leisure. Nevertheless, organizations endowed with firing threats underperformed those using individual incentives. In the presence of firing threats, employees engage in impression management activities to be seen as hard-working individuals in line with our model. Finally, production levels dropped substantially when the threat of being fired was removed, whereas on-the-job leisure surged

Asymmetry and Deception in the Investment Game

Several situations in our daily interactions are characterized by uncertainty and asymmetric information regarding the final outcomes. For example, an investor may overstate a project’s value, or a superior may choose to under, or over, state the gains from a project to a subordinate. We modify the standard investment game to study the effect of possible deception, i.e. over-, or under-, statement of the true value, on investee (and investor) behavior. We find that deception is prevalent and around 66% of the investors send false messages. Investors both over-, and under-, state the true value of the multiplier, k. We elicit investee beliefs and find that investees are naive in that almost half of them believe the message they receive. Meanwhile, a large proportion of investors think that sending a message was useful. The introduction of the possibility of deception does not affect trust or trustworthiness on average, but deceivers make the deceived worse off, return less and are more likely to report lying to avoid harming others. Finally, an increase in information asymmetry increases deception

The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings

Collusion is when firms coordinate on suppressing competition, and coordination typically requires that firms communicate in some manner. This study conducts experiments to determine what modes of communications are able to produce and sustain collusion and how the efficacy of communication depends on firm heterogeneity and the number of firms. We consider two different communication treatments: non-binding price announcements and unrestricted written communication. Our main findings are that price announcements allow subjects to coordinate on a high price but only under duopoly and when firms are symmetric. While price announcements do result in higher prices when subjects are asymmetric, there is little evidence that they are coordinating their behavior. When subjects are allowed to engage in unrestricted communication, coordination on high prices occurs whether they are symmetric or asymmetric. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms

Revisiting the Tradeoff between Risk and Incentives: The Shocking Effect of Random Shocks

Despite its central role in the theory of incentives, empirical evidence of a tradeoff between risk and incentives remains scarce. We reexamine this empirical puzzle in a controlled laboratory environment so as to isolate possible confounding factors encountered in the field. In line with the principal-agent model, we find that principals increase fixed pay while lowering performance pay when the relationship between effort and output is noisier. Unexpectedly, agents produce substantially more in the noisy environment than in the baseline despite lesser pay for performance. We show that this result can be accounted for by introducing agents’ loss aversion in the principal-agent model. Our findings call for an extension of standard agency models and for a reassessment of apparently inefficient management practices

Peer Pressure and Moral Hazard in Teams: Experimental Evidence

Holmström (1982) established that free riding behaviors are pervasive whenever people are paid according to aggregate measures of output such as team incentives. However, team incentives have been found to be particularly effective both in the lab and in the field. In this paper we show, in line with Holmström (1982), that shirking behaviors in teams are indeed pervasive. Production levels were significantly lower under team incentives than under individual incentives while the time dedicated to on-the-job leisure activities (Internet usage) was significantly larger under team incentives than under individual incentives. Subsequently, we find that a very weak form of peer monitoring (anonymous and without physical proximity, verbal threats or face to face interactions) allowed organizations using team incentives to perform as well as those using individual incentives. This provides strong evidence for the conjecture of Kandel and Lazear (1992) that peer pressure may resolve the moral hazard in teams problem

Downside of Big-Brother Monitoring

We have studied the potential cost: the reactions of the employees being monitored. Our studies show that, although boss-monitoring does sharply reduce how much time employees spend surfing the Web at work, it also demotivates them and communicates distrust. So boss-monitoring can undercut the productivity gains that it was supposed to produce. The good news from our studies is that another form of monitoring—peer monitoring—reduced Internet abuse just as readily and maintained employee motivation. Additionally, when designing their dream firm, employees chose peer monitoring instead of boss monitoring to reduce their own Internet use. Bosses apt to monitor their employees, then, might consider letting employees monitor themselves