This paper studies the impact of incentives on worker self-selection in a controlled laboratory experiment. Subjects face the choice between a fixed and a variable payment scheme. Depending on the treatment, the variable payment is a piece rate, a tournament, or a revenue-sharing scheme. We find that output is higher in the variable-payment schemes compared to the fixed-payment scheme. This difference is largely driven by productivity sorting. In addition, different incentive schemes systematically attract individuals with different attitudes, such as willingness to take risks and relative self-assessment as well as gender, which underlines the importance of multidimensional sorting.
Output, sorting, effort provision and output changes.
Output: Productivity sorting explains a substantial part of output differences observed in variable versus fixed-payment schemes. Respective median response times for the piece-rate, tournament, and revenue-sharing treatment are 34.5 seconds, 72 seconds, and 116 seconds, respectively. In addition, variance in output is significantly higher in the revenue-sharing treatment suggesting that not only the decision to enter is complex but also that conditional on having selected in to the revenue-sharing treatment, the incentive structure is more complex than in the other two treatments. Sorting: Productive workers are more likely to self-select into variable-payment schemes when offered a fixed-payment scheme as an alternative. This holds for piece-rate, tournament, as well as revenue-sharing schemes. Controlling for productivity, workers are more likely to prefer a fixed-payment scheme the more risk averse they are. Risk attitudes do not seem to matter at all for the decision to select into team incentive schemes. Tournaments attract workers who believe their performance is high, relative to other workers. This effect plays no role in piece rates. Variable-payment schemes generally attract fewer women, an effect that is partly driven by an underlying gender difference in risk attitudes and productivity. The effect is strongest in the most competitive scheme, the tournament. Additional results show that the impact of personal characteristics on the sorting decision is heterogenous, and that social preferences seem to play only a marginal role. Sorting generally depends on a subject’s location in the productivity distribution or on whether a subject’s decision is on the fence. Effort provision and output changes: In our study workers report higher effort levels in pay for performance schemes than in fixed-payment schemes. Moreover, they report higher levels of stress and exhaustion.