Incentive Complexity, Bounded Rationality and Effort Provision

Johannes Abeler, David Huffman, Collin Raymond and David B. Huffman
Authors registered in the RePEc Author Service: David Huffman

No 10541, CESifo Working Paper Series from CESifo

Abstract: 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.

Keywords: complexity; bounded rationality; shrouded attribute; Ratchet effect; dynamic incentives; field experiments (search for similar items in EconPapers)
JEL-codes: D80 D90 J20 J30 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-exp, nep-hrm and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Incentive Complexity, Bounded Rationality and Effort Provision (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10541

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