Essays on Team-based Incentives

Download or read book Essays on Team-based Incentives written by Hua Chen and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the past few decades, team-based incentives are used by more and more organizations to motivate their agents to exert effort. The usage of team incentives creates many challenges, especially the "free-riding" problem. In current dissertation, we provide the evidence from the laboratory and field experiments to answer several critical questions faced by managers: Given the potency of free-riding and without task complementary, could team-based incentives be at least as effective as individual-based incentives or even better? If so, under what condition would the team-based incentives be effective? Furthermore, what are the driving forces that make team-based incentives effective? In essay 1, we focus on the piece rates compensation scheme. Specifically, we examine three types of incentives: Individual incentive where agents are paid by a commission rate purely on their individual output; Team-based incentive where agents are paid by a commission rate on the weighted average of individual output and team output (the average of output of all the members in the team). Team-based incentive can be further categorized as Team incentive when the weight of individual output is zero and Hybrid incentive with the weight greater than zero but less than one. We find that team-based incentives could be as effective as individual-based incentives under certain environment. More important, changing the structure of team-based incentives by varying the proportion of individual output and team output can make team-based incentives even more effective. Last, appropriate mutual monitoring is helpful but "perfect" mutual monitoring may induce negative effect on agents' effort. In essay 2, we compare the efficacy of team-based versus individual-based incentives using economic experiments, answering the following question: when designing contests to motivate employees, should managers organize employees to compete in teams or as individuals? We develop a behavioral economics model that shows that if contestants are averse to being responsible for their team's loss, a team-based contest can yield higher effort as compared to an individual-based contest. We test this prediction for a four-person contest using a laboratory economics experiment. The results show that when contestants do not know each other, average effort levels in the individual-based and team-based contests are no different. However, when we allow contestants to socialize with potential teammates before making effort decisions, team-based contests yield higher effort relative to individual-based contests. We also conduct a field experiment that compares team-based and individual-based contests in a setting where contestants are familiar with one another. The results parallel those from the lab and indicate that team-based contests generate higher sales.