Menus of contracts determine sorting patterns

Mark Bernard, Thomas Dohmen, Arjan Non, Ingrid M. T. Rohde*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Using a real-effort task laboratory experiment, we investigate how the menu of available contracts affects worker self-selection into pay-for-performance contracts based on characteristics such as productivity and risk attitude. We provide evidence that the same contract attracts different types of workers for different sets of available alternatives. This insight, which is consistent with theoretical considerations, is crucial for organizations, because the type of workers that is attracted by a given incentive contract depends on the contracts offered by competing firms. Moreover, available alternative contracts determine the scope of worker types that can be attracted with a particular contract. Another implication is that organizations can design menus of contracts to induce fine-tuned multidimensional sorting patterns, which facilitates optimal assignment of workers to tasks.
Original languageEnglish
Pages (from-to)293-311
Number of pages19
JournalJournal of Economic Psychology
Volume72
DOIs
Publication statusPublished - Jun 2019

JEL classifications

  • c91 - Design of Experiments: Laboratory, Individual
  • d81 - Criteria for Decision-Making under Risk and Uncertainty
  • d82 - "Asymmetric and Private Information; Mechanism Design"
  • j16 - "Economics of Gender; Non-labor Discrimination"
  • j31 - "Wage Level and Structure; Wage Differentials"

Keywords

  • Incentives
  • Multidimensional sorting
  • Lab experiment
  • PERFORMANCE-PAY
  • SELF-SELECTION
  • TOURNAMENTS
  • RISK
  • PREFERENCES
  • INCENTIVES
  • WORK

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