HAL is a multi-disciplinary open access archive for the deposit and dissemination of sci-entific ... more HAL is a multi-disciplinary open access archive for the deposit and dissemination of sci-entific research documents, whether they are pub-lished or not. The documents may come from teaching and research institutions in France or abroad, or from public or private research centers. L’archive ouverte pluridisciplinaire HAL, est destinée au dépôt et a ̀ la diffusion de documents scientifiques de niveau recherche, publiés ou non, émanant des établissements d’enseignement et de recherche français ou étrangers, des laboratoires publics ou privés.
Abstract: In labor markets, the ratchet effect refers to a situation where workers subject to per... more Abstract: In labor markets, the ratchet effect refers to a situation where workers subject to performance pay choose to restrict their output, because they rationally anticipate that firms will respond to higher output levels by raising output requirements or cutting pay. We model this effect as a multi-period principal-agent problem with hidden information, and study its robustness to labor market competition both theoretically and experimentally. Consistent with our theoretical model, we observe substantial ratchet effects in the absence of competition, which is nearly eliminated when competition is introduced; this is true regardless of whether market
collected by independent institutions in each country, and documented and made available by the Z... more collected by independent institutions in each country, and documented and made available by the ZENTRALARCHIV FUER EMPIRISCHE SOZIALFORSCHUNG, Köln. Neither the original collector of the dataset nor the Archive bear any responsibility for the analyses or interpretations presented here. We are also grateful to R. Zeiliger for programming the experiment presented in this paper, to K. Ben Abbes and M. Bouamoud for assistance in the lab, and to the MiRe – DREES (French Ministry of Social Affairs) for a grant to support this research. a
Rank-order tournaments have incentive properties but their overall efficiency is reduced by a hig... more Rank-order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance (Bull, Schotter and Weigelt, 1987). As emphasized by Lazear (1986, 2000) the efficiency of performance-related pay is attributable both to its incentive effect and to its sorting effect among employees. However, we know very little about the ex ante sorting effect of tournaments. This paper reports results from an experiment analyzing whether allowing subjects to self-select into different payment schemes helps in reducing the variability of performance in tournaments. We show that when the subjects choose to enter a tournament, the average effort is higher and the between-subject variance is substantially lower than when the same payment scheme is imposed. Sorting is efficiency-enhancing since it increases the homogeneity of the contestants. Our results suggest that the flexibility of the labor market is an important condition for a higher efficiency of relativ...
HAL is a multi-disciplinary open access archive for the deposit and dissemination of sci-entific ... more HAL is a multi-disciplinary open access archive for the deposit and dissemination of sci-entific research documents, whether they are pub-lished or not. The documents may come from teaching and research institutions in France or abroad, or from public or private research centers. L’archive ouverte pluridisciplinaire HAL, est destinée au dépôt et a ̀ la diffusion de documents scientifiques de niveau recherche, publiés ou non, émanant des établissements d’enseignement et de recherche français ou étrangers, des laboratoires publics ou privés.
Abstract: In labor markets, the ratchet effect refers to a situation where workers subject to per... more Abstract: In labor markets, the ratchet effect refers to a situation where workers subject to performance pay choose to restrict their output, because they rationally anticipate that firms will respond to higher output levels by raising output requirements or cutting pay. We model this effect as a multi-period principal-agent problem with hidden information, and study its robustness to labor market competition both theoretically and experimentally. Consistent with our theoretical model, we observe substantial ratchet effects in the absence of competition, which is nearly eliminated when competition is introduced; this is true regardless of whether market
collected by independent institutions in each country, and documented and made available by the Z... more collected by independent institutions in each country, and documented and made available by the ZENTRALARCHIV FUER EMPIRISCHE SOZIALFORSCHUNG, Köln. Neither the original collector of the dataset nor the Archive bear any responsibility for the analyses or interpretations presented here. We are also grateful to R. Zeiliger for programming the experiment presented in this paper, to K. Ben Abbes and M. Bouamoud for assistance in the lab, and to the MiRe – DREES (French Ministry of Social Affairs) for a grant to support this research. a
Rank-order tournaments have incentive properties but their overall efficiency is reduced by a hig... more Rank-order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance (Bull, Schotter and Weigelt, 1987). As emphasized by Lazear (1986, 2000) the efficiency of performance-related pay is attributable both to its incentive effect and to its sorting effect among employees. However, we know very little about the ex ante sorting effect of tournaments. This paper reports results from an experiment analyzing whether allowing subjects to self-select into different payment schemes helps in reducing the variability of performance in tournaments. We show that when the subjects choose to enter a tournament, the average effort is higher and the between-subject variance is substantially lower than when the same payment scheme is imposed. Sorting is efficiency-enhancing since it increases the homogeneity of the contestants. Our results suggest that the flexibility of the labor market is an important condition for a higher efficiency of relativ...
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