Incentive Complexity, Bounded Rationality and Effort Provision

Arbeitspapier

Using field and laboratory experiments, we demonstrate that the complexity of incentive schemes and worker bounded rationality can affect effort provision, by shrouding attributes of the incentives. In our setting, complexity leads workers to over-provide effort relative to a fully rational benchmark, and improves efficiency. We identify contract features, and facets of worker cognitive ability, that matter for shrouding. We find that even relatively small degrees of shrouding can cause large shifts in behavior. Our results illustrate important implications of complexity for designing and regulating workplace incentive contracts.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 10541

Classification and Topics

• Classification: Wirtschaft ; Information, Knowledge, and Uncertainty: General ; Micro-Based Behavioral Economics: General‡ ; Demand and Supply of Labor: General ; Wages, Compensation, and Labor Costs: General
• Subject: complexity ; bounded rationality ; shrouded attribute ; Ratchet effect ; dynamic incentives ; field experiments

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Abeler, Johannes ; Huffman, David ; Raymond, Collin ; Huffman, David B.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/279291
• Last update: 10.03.2025, 11:44 AM CET