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on Human Capital and Human Resource Management |
| By: | Víctor González-Jiménez |
| Abstract: | I show that stochastic contracts are powerful motivational devices when agents distort probabilities. Stochastic contracts allow the principal to target probabilities that, when distorted by the agent, enhance the agent's motivation to exert effort on the delegated task. This novel source of incentives is absent in traditional contracts. A theoretical framework and an experiment demonstrate that stochastic contracts targeting small probabilities, and thus exposing the agent to a large degree of risk, generate higher performance levels than traditional contracting modalities. A result that contradicts the standard rationale that optimal contracts should feature a tradeoff between insurance and efficiency. This unintuitive finding is attributed to probability distortions caused by likelihood insensitivity - cognitive limitations that restrict the accurate evaluation of probabilities. |
| JEL: | C91 C92 J16 J24 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:vie2101&r= |
| By: | Nicholas Bloom; Scott W. Ohlmacher; Cristina J. Tello-Trillo; Melanie Wallskog |
| Abstract: | Using confidential Census matched employer-employee earnings data we find that employees at more productive firms, and firms with more structured management practices, have substantially higher pay, both on average and across every percentile of the pay distribution. This pay-performance relationship is particularly strong amongst higher paid employees, with a doubling of firm productivity associated with 11% more pay for the highest-paid employee (likely the CEO) compared to 4.7% for the median worker. This pay-performance link holds in public and private firms, although it is almost twice as strong in public firms for the highest-paid employees. Top pay volatility is also strongly related to productivity and structured management, suggesting this performance-pay relationship arises from more aggressive monitoring and incentive practices for top earners. |
| JEL: | J0 L0 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29377&r= |
| By: | Victor Gonzalez-Jimenez; Patricio S. Dalton; Charles N. Noussair |
| Abstract: | To incentivize workers and boost performance, firms often offer monetary bonuses for the achievement of production goals. Such bonuses appeal to two types of motivations of the worker. On the one hand, the existence of a goal, on its own, triggers an intrinsic motivation associated with the desire to not fall short of the goal. On the other hand, the money paid to achieve the goal constitutes an extrinsic motivation. This paper studies the possibility that these two effects are substitutes when workers set their own goals. We develop a theoretical model that predicts that if the worker is sufficiently loss averse and faces uncertainty about reaching a production goal, offering a monetary payment contingent on reaching such a goal is counterproductive. This is because under the presence of monetary bonuses, the loss averse worker prefers setting lower goals, which yield lower but more likely bonus payments. Lower goals, in turn, negatively affect subsequent performance. Results from a laboratory experiment corroborate this prediction. This paper highlights the limits of monetary bonuses as an effective incentive when workers are loss averse. |
| JEL: | J41 D90 C91 D81 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:vie1909&r= |
| By: | Michele Fioretti (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Hongming Wang (Hitotsubashi University) |
| Abstract: | Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the quality bonus payment initiative in Medicare Advantage, we find that higher quality-rated insurers responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in enrollee health. Selection inflated the bonus payments and shifted the supply of high-rated insurance to the healthiest counties, reducing access to lower-priced, higher-rated insurance in the riskiest counties. |
| Keywords: | Pay-for-Performance,Medicare Advantage,Risk Selection,Quality Ratings,Health Insurance Access |
| Date: | 2021–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03386584&r= |
| By: | Holub, Felix; Drechsel-Grau, Moritz |
| JEL: | J16 J31 J33 J71 M5 D83 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc21:242443&r= |
| By: | Johanna Mollerstrom; Avner Strulov-Shlain; Dmitry Taubinsky |
| Abstract: | We report the results of an online experiment studying preferences for giving and preferences for group-wide redistribution in small (4-person) and large (200-person) groups. We find that the desire to engage in voluntary giving decreases significantly with group size. However, voting for group-wide redistribution is precisely estimated to not depend on group size. Moreover, people’s perception of the size of their reference group is malleable, and affects their desire to give. These results suggest that government programs, such as progressive tax-and-transfer systems, can help satisfy other-regarding preferences for redistribution in a way that creating opportunities for voluntary giving cannot. |
| JEL: | D63 D9 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29375&r= |