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The roles of selection and practice in mitigating negative responses to high-powered incentives

Published online by Cambridge University Press:  02 April 2025

Rosario Macera Open the ORCID record for Rosario Macera [Opens in a new window]
Rosario Macera*
Affiliation:
School of Management, Pontificia Universidad Católica de Chile, Santiago, Chile
*
[email protected]
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Abstract

Despite substantial evidence for the effectiveness of monetary incentives, some experiments have shown that high-powered incentives might lead to lower performance than lesser incentives. This study explores whether firms have means to counter these potential negative effects. Building on a standard experimental design identifying the drawbacks of large-stake rewards, it shows that when workers either self-select into the task or have prior practice, high-powered incentives lead to higher average performance than a smaller reward. This effect is driven mainly by selection and practice increasing the share of workers who respond positively to high-powered incentives. These results suggest that firms have natural instruments to deal with the potential adverse effects of high-powered incentives.

Keywords

High-powered incentivesChoking under pressure

JEL classification

D86: Economics of Contract: Theory D90: General‡ J33: Compensation Packages • Payment Methods
Type
Original Paper
Information
Experimental Economics , Volume 27 , Issue 5 , November 2024 , pp. 973 - 1000
Copyright
Copyright © The Author(s), under exclusive licence to Economic Science Association 2024

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Footnotes

I specially thank CONICYT Fondecyt Regular #1190305 and Instituto de Sistemas Complejos de Ingeniería (ISCI), ANID PIA/PUENTE AFB230002 for funding. Hugo Correa, Carla Guadalupi, Alejandro Guin-Po, Alejandro Hirmas, Guillermo Irarrázabal, Fernanda y Sofía Lozano, Maria Cristina Riquelme and Pablo Sánchez provided excellent research assistance. I thank Raicho Bojilov, Edgar Kausel, Carlos Noton, Joaquín Poblete, Zoe Rahwan and Mike Waldman for useful comments. I further thank participants at the 9th Maastricht Behavioral and Experimental Economics Symposium, the 7th International Conference of the French Association of Experimental Economics, and EEA-ESEM Geneva 2016. Seminars participants at the Universidad de Chile, Universidad Alberto Hurtado, Universidad de Los Andes, and Centro de Encuestas UC also provided useful feedback. AER registry ID AEARCTR-0005745. Data, code and experimental instructions in the repository https://doi.org/10.60525/04teye511/UUCN1B.

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