does working from home work evidence from a chinese experiment about 10 of us employees now regularly work from home wfh but there are concerns this can lead to shirking from home we report the results of a wfh experiment at ctrip a 16 000 employee nasdaq listed chinese travel agency call center employees who volunteered to wfh were randomly assigned to work from home or in the office for 9 months home working led to a 13 performance increase of which about 9 was from working more minutes per shift fewer breaks and sick days and 4 from more calls per minute attributed to a quieter working environment home workers also reported improved work satisfaction and experienced less turnover but their promotion rate conditional on performance fell due to the success of the experiment ctrip rolled out the option to wfh to the whole firm and allowed the experimental employees to re select between the home or office interestingly over half of them switched which led to the gains from wfh almost doubling to 22 this highlights the benefits of learning and selection effects when adopting modern management practices like wfh

competitive incentives working harder or working smarter almost all jobs require a combination of cognitive effort and labor effort this paper focuses on the effect that competitive incentive schemes have on the chosen combination of these two types of efforts we use an experimental approach to show that competitive incentives may induce agents to work harder but not necessarily smarter this effect was stronger for women this paper was accepted by john list behavioral economics

time is money time pressure incentives and the quality of decision making many decisions in economics and finance have to be made under severe time pressure furthermore payoffs frequently depend on the speed of decision making as for instance when buying and selling stocks in this paper we examine the influence of time pressure and time dependent incentive schemes on the quality of decision making in an experimental beauty contest game we find that convergence to equilibrium is faster and payoffs are higher under low time pressure than under high time pressure interestingly time dependent payoffs under high time pressure lead to significantly quicker decision making without reducing the quality of decisions

productivity spillovers in team production evidence from professional basketball we estimate a model where workers are heterogeneous both in their own productivity and in their ability to facilitate the productivity of others we use data from professional basketball to measure the importance of peers in productivity because we have clear measures of output and members of a worker s group change on a regular basis our empirical results highlight that productivity spillovers play an important role in team production despite this we find that worker compensation is largely determined by own productivity with little weight given to productivity spillovers

lottery choice incentives complexity and decision time this paper reports the results of an experiment on lottery choice in which decision cost is measured as decision making time a simple decision cost model motivates this measurement and the experiment and predicts relationships between incentive mechanism manipulations and decision making time which are borne out in the experiment the decision cost model also suggests that decisions will change in the face of the incentive manipulations in the experiment this suggestion is borne out in a complex decision making environment but not in a simple one specification tests demonstrate that observed changes in subjects behavior are not merely due to changes in subject specific error variance one may conclude from this that the payoff dominance problem is a real issue in complex decision making experiments copyright 1993 by royal economic society

on the economic architecture of the workplace repercussions of social comparisons among heterogeneous workers we analyze the impact on a firm s profits and optimal wage rates and on the distribution of workers earnings when workers compare their earnings with those of coworkers we consider a low productivity worker who receives lower wage earnings than a high productivity worker when the low productivity worker derives dis utility not only from his own effort but also from comparing his earnings with those of the high productivity worker his response to the sensing of relative deprivation is to increase the optimal level of effort consequently the firm s profits are higher its wage rates remain unchanged and the distribution of earnings is compressed

peer pressure and partnerships partnerships and profit sharing are often claimed to motivate workers by giving them a share of the pie but in organizations of any significant size the free rider effects would seem to choke off

one two three infinity newspaper and lab beauty contest experiments beauty contest is a game in which participants have to choose typically a number in 0 100 the winner being the person whose number is closest to a proportion of the average of all chosen numbers we describe and analyze beauty contest experiments run in newspapers in uk spain and germany and find stable patterns of behavior across them despite the uncontrollability of these experiments these results are then compared with lab experiments involving undergraduates and game theorists as subjects in what must be one of the largest empirical corroborations of interactive behavior ever tried we claim that all observed behavior across a wide variety of treatments and subject pools can be interpretedas iterative reasoning level 1 reasoning level 2 reasoning and level 3 reasoning are commonly observed in all the samples while the equilibrium choice level maximum reasoning is only prominently chosen by newspaper readers and theorists the results show the empirical power of experiments run with large subject pools and open the door for more experimental work performed on the rich platform offered by newspapers and magazines

the price of innovation new estimates of drug development costs the research and development costs of 68 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms these data were used to estimate the average pre tax cost of new drug development the costs of compounds abandoned during testing were linked to the costs of compounds that obtained marketing approval the estimated average out of pocket cost per new drug is us 403 million 2000 dollars capitalizing out of pocket costs to the point of marketing approval at a real discount rate of 11 yields a total pre approval cost estimate of us 802 million 2000 dollars when compared to the results of an earlier study with a similar methodology total capitalized costs were shown to have increased at an annual rate of 7 4 above general price inflation 2003 elsevier science b v all rights reserved

discrete choice with social interactions and endogenous memberships this paper develops a theory of sorting and behavior when the latter is subject to social influences i extend the choice model with social interactions developed by brock and durlauf 2001a 2003 to allow for equilibrium group formation individuals choose a group and a behavior subject to an endogenous social effect the latter turns out to be a segregating force and stable equilibria are stratified the sorting process may induce inefficiently multiple behavioral equilibria such a theory serves as a means to solve identification and selection problems that may undermine the empirical detection of social effects on individual behavior i exploit the theoretical structure to build a nonlinear in the social effect selection correction term such a term allows identification and solves the selection problem that arises when individuals can choose the group whose effect the researcher is trying to disentangle

the behavioralist visits the factory increasing productivity using simple framing manipulations recent discoveries in behavioral economics have led to important new insights concerning what can happen in markets such gains in knowledge have come primarily via laboratory experiments a missing piece of the puzzle in many cases is parallel evidence drawn from naturally occurring field counterparts we provide a small movement in this direction by taking advantage of a unique opportunity to work with a chinese high tech manufacturing facility our study revolves around using insights gained from one of the most influential lines of behavioral research framing manipulations in an attempt to increase worker productivity in the facility using a natural field experiment we report several insights for example conditional incentives framed as both losses and gains increase productivity for both individuals and teams in addition teams more acutely respond to bonuses posed as losses than as comparable bonuses posed as gains the magnitude of this framing effect is roughly 1 that is total team productivity is enhanced by 1 purely due to the framing manipulation importantly we find that neither the framing nor the incentive effect lose their significance over time rather the effects are observed over the entire sample period moreover we learn that repeated interaction with workers and conditionality of the bonus contract are substitutes for sustenance of incentive effects in the long run this paper was accepted by gerard p cachon decision analysis

wages and employment under trade unionism microeconomic models and macroeconomic applications the first part of this paper is a critical survey of microeconomic research into behavioural models of trade unionism although certain formulations of union objectives and models of wage and employment determination in unionized markets have found favor with economists unfortunately only a little is known about their empirical relevance the second part of this paper deals with the daunting problems of applying these models at the macroeconomic level one such model is estimated with data from sweden s mining and manufacturing sector from 1968 to 1982

the dual process drift diffusion model evidence from response times we introduce a model of response time and choice that borrows from two distinct psychological traditions as in dual process models rapid automatic decisions are qualitatively different from considered decisions as in the drift diffusion model delayed considered decisions occur when confidence hits a threshold level we conduct a simple experiment in which our hybrid model matches key properties of the data as our model predicts decision times are bimodal automatic decisions are of far lower quality than considered decisions and automatic decisions are more prevalent when prior information improves thereby raising their quality jel d83 d87 c91

how effective are fiscal incentives for r d a review of the evidence this paper surveys the econometric evidence on the effectiveness of fiscal incentives for r d we describe the effects of tax systems in oecd countries on the user cost of r d the current position changes over time and across different firms in different countries we describe and criticize the methodologies used to evaluate the effect of the tax system on

progress in behavioral game theory i s game theory meant to describe actual choices by people and institutions or not it is remarkable how much game theory has been done while largely ignoring this question the seminal book by von neumann and morgenstern the theory of games and economic behavior was clearly about how rational players would play against others they knew were rational in more recent work game theorists are not always explicit about what they aim to describe or advise at one extreme highly mathematical analyses have proposed rationality requirements that people and firms are probably not smart enough to satisfy in everyday decisions at the other extreme adaptive and evolutionary approaches use very simple modelsmostly developed to describe nonhuman animals in which players may not realize they are playing a game at all when game theory does aim to describe behavior it often proceeds with a disturbingly low ratio of careful observation to theorizing this paper describes an approach called behavioral game theory which aims to describe actual behavior is driven by empirical observation mostly experiments and charts a middle course between over rational equilibrium analyses and under rational adaptive analyses the recipe for behavioral game theory i will describe has three steps start with a game or naturally occurring situation in which standard game theory makes a bold prediction based on one or two crucial principles if behavior differs from interested readers familiar with game theory should read crawford 1997 whose approach is more eclectic than mine he concludes p 236 that most strategic behavior can be understood via a synthesis that combines elements from each of the leading theoretical frameworks traditional game theory evolutionary game theory and adaptive learning with a modicum of empirical information about behavior behavioral game theory adds psychological interpretations to this synthesis

market incentives and pharmaceutical innovation i study the impact of the orphan drug act oda which established tax incentives for rare disease drug development i examine the flow of new clinical drug trials for a large set of rare diseases among more prevalent rare diseases the oda led to a significant and sustained increase in new trials the impact for less prevalent rare diseases was limited to an increase in the stock of drugs tax credits can stimulate rd yet because they leave revenue margins unaffected tax credits appear to have a more limited impact on private innovation in markets with smaller revenue potential

testing mixed strategy equilibria when players are heterogeneous the case of penalty kicks in soccer the concept of mixed strategy is a fundamental component of game theory and its normative importance is undisputed however its empirical relevance has sometimes been viewed with skepticism the main concern over the practical usefulness of mixed strategies relates to the indifference property of a mixedstrategy equilibrium in order to be willing to play a mixed strategy an agent must be indifferent between each of the pure strategies that are played with positive probability in the mixed strategy as well as any combination of those strategies given that the agent is indifferent across these many strategies there is no bene t to selecting precisely the strategy that induces the opponent to be indifferent as required for equilibrium why an agent would in the absence of communication between players choose exactly one particular randomization is not clear of course whether agents in real life actually play nash equilibrium mixed strategies is ultimately an empirical question the evidence to date on this issue is based almost exclusively on laboratory experiments e g barry o neill 1987 amnon rapoport and richard b boebel 1992 dilip mookherjee and barry sopher 1994 jack ochs 1995 kevin a mccabe et al 2000 the results of these experiments are mixed o neill 1987 concludes that his experimental evidence is consistent with nash mixed strategies but that conclusion was contested by james n brown and robert w rosenthal 1990 with the exception of mccabe et al 2000 which looks at a three person game the other papers generally reject the nash mixedstrategy equilibrium while much has been learned in the laboratory there are inherent limitations to such studies it is sometimes argued that behavior in the simpli ed arti cial setting of games played in such experiments need not mimic real life behavior in addition even if individuals behave in ways that are inconsistent with optimizing behavior in the lab market forces may discipline such behavior in the real world finally interpretation of experiments rely on the assumption that the subjects are maximizing the monetary outcome of the game whereas there may be other preferences at work among subjects e g attempting to avoid looking foolish that distort the results tests of mixed strategies in nonexperimental data are quite scarce in real life the games played are typically quite complex with large strategy spaces that are not fully speci ed ex ante in addition preferences of the actors may not be perfectly known we are aware of only one paper in a similar spirit to our own research using data from classic tennis matches mark walker and john wooders 2001 test whether the probability the player who serves the ball wins the point is equal for serves to the right and chiappori department of economics university of chicago 1126 east 59th street chicago il 60637 levitt department of economics university of chicago groseclose graduate school of business stanford university 518 memorial way stanford ca 94305 the paper was presented at games 2000 in bilbao and at seminars in paris and chicago we thank d braun j m conterno r guesnerie d heller d mengual p reny b salanie and especially j l ettori for comments and suggestions and m mazzocco and f bos for excellent research assistance any errors are ours 1 the theoretical arguments given in defense of the concept of mixed strategy equilibria relate either to puri cation john c harsanyi 1973 or to the minimax property of the equilibrium strategy in zero sum games for recent elaborations on these ideas see authur j robson 1994 and phil reny and robson 2001 2 the ultimatum game is one instance in which experimental play of subjects diverges substantially from the predicted nash equilibrium robert slonim and alvin e roth 1998 demonstrate that raising the monetary payoffs to experiment participants induces behavior closer to that predicted by theory although some disparity persists

school choice and segregation evidence from an admission reform we evaluate the effects of school choice on segregation using data from an admission reform in the stockholm upper secondary schools before 2000 the students were assigned to their nearest school but from the fall of 2000 the students can apply to any school within stockholm and admission decisions are solely based on grades as expected the new admission policy increased segregation by ability however segregation by family background and especially segregation between immigrants and natives also increased significantly the increase in segregation by family background can be explained by ability sorting but the increase in ethnic segregation can not

peer effects in the workplace existing evidence on peer effects in the productivity of coworkers stems from either laboratory experiments or real world studies referring to a specific firm or occupation in this paper we aim at providing more generalizable results by investigating a large local labor market with a focus on peer effects in wages rather than productivity our estimation strategy which links the average permanent productivity of workers peers to their wages circumvents the reflection problem and accounts for endogenous sorting of workers into peer groups and firms on average over all occupations and in the type of high skilled occupations investigated in studies on knowledge spillover we find only small peer effects in wages in the type of low skilled occupations analyzed in extant studies on social pressure in contrast we find larger peer effects about one half the size of those identified in similar studies on productivity

migration unemployment and discrimination abstract this paper uses a dynamic efficiency wage model to analyze the consequences of immigration for a small country when there is discrimination against immigrants in a dual labor market with unemployment discrimination is of the type equal pay for equal work but unequal work which is characteristic of economies with guest worker systems the model exhibits three regimes for rising immigration levels immigration is most beneficial for natives in the intermediate regime an analysis of regime switches shows that changes attributable to globalization and technical progress are consistent with growing opposition to immigration

an integration of trade union models in a sequential bargaining framework this paper aims to embed two popular models of trade union behavior the monopoly model and the efficient bargaining model in a more general framework it does this by analyzing sequential bargaining models where wages are determined before employment and the power of the union in the two stages of the bargain differs as well as finding that the monopoly and efficient bargain models are special cases of this model a new class of models is also discovered this framework is used to analyze the relationship between union pow er and efficiency the empirical analysis of trade unions and the effects of trade union legislation copyright 1987 by royal economic society

moving to opportunity in boston early results of a randomized mobility experiment this paper examines the short run impacts of a change in residential neighborhood on the well being of low income families using evidence from a program in which eligibility for a housing voucher was determined by random lottery we examine the experiences of households at the boston site of moving to opportunity mto a demonstration program in five cities families in high poverty public housing projects applied to mto and were assigned by lottery to one of three groups experimental offered mobility counseling and a section 8 subsidy valid only in a census tract with a poverty rate of less than 10 percent section 8 comparison offered a geographically unrestricted section 8 subsidy or control offered no new assistance but continued to be eligible for public housing our quantitative analyses of program impacts uses data on 540 families from a baseline survey at program enrollment a follow up survey administered l to 3 5 years after random assignment and state administrative data on earnings and welfare receipt 48 percent of the experimental group and 62 percent of the section 8 comparison group moved through the mto program one to three years after program entry families in both treatment groups were more likely to be residing in neighborhoods with low poverty rates and high education levels than were families in the control group however while members of the experimental group were much more likely to be residing in suburban communities than were those in the section 8 group the lower program take up rate among the experimental group resulted in more families remaining in the most distressed communities households in both treatment groups experienced improvements in multiple measures of well being relative to the control group including increased safety improved health among household heads and fewer behavior problems among boys experimental group children were also less likely to be a victim of a personal crime to be injured or to experience an asthma attack there are no significant impacts of either mto treatment on the employment earnings or welfare receipt of household heads in the first three years after random assignment

crime in the lab detecting social interaction abstract according to the standard economic perspective criminal activities vary with the price of crime which depends on the severity of punishment and the detection probability an alternative view claims that crime is also influenced by social interaction phenomena such as peer pressure or neighbourhood effects detecting social interaction in the field is fraught with difficulties however in this paper we argue that given its extensive control possibilities experiments are well suited to show the potential existence of social interaction effects we present an experimental study where people can engage in criminal activities we find support for the importance of social interaction on average subjects steal the more the more others steal this behaviour can be interpreted in terms of reciprocity

can immigrant employment alleviate the demographic burden the role of union centralization this paper investigates the effect of labor immigration on public pensions when wage setting by a centralized trade union leads to unemployment it is shown that immigration improves the financial soundness of pay as you go pensions if and only if it diminishes total employment this occurs if the absolute value of the elasticity of labor demand exceeds the unemployment rate

do professionals choke under pressure high rewards or the threat of severe punishment provide strong motivation but also create psychological pressure which might induce performance decrements by analyzing the performance of professional football players in penalty kick situations the paper provides empirical evidence for the existence of detrimental incentive effects two pressure variables are considered in particular 1 the importance of success and 2 the presence of spectators there are plenty of situations in which pressure arises in the workplace knowing how individuals perform under pressure conditions is crucial because it has implications for the design of the workplace and the design of incentive schemes

optimal design of social comparison effects setting reference groups and reference points in this paper we study how social planners should exploit social comparisons to pursue their objectives we consider two modes of social comparison referred to as behind averse and ahead seeking behaviors depending on whether individuals experience a utility loss from underperforming or a utility gain from overperforming relative to their peers modeling social comparison as a game between players we find that ahead seeking behavior leads to output polarization whereas behind averse behavior leads to output clustering a social planner can mitigate these effects in two ways i by providing the full reference distribution of outputs instead of an aggregate reference point based on the average output and ii by assigning players into uniform rather than diverse reference groups social planners may thus need to tailor the reference structure to the predominant mode of social comparison and their objective a performance focused social planner may set the reference structure so as to maximize the output of either the top or the bottom player depending on whether she puts greater marginal weight to larger or smaller outputs when the social planner also cares about utility she faces a dilemma because performance optimization may not be aligned with utility maximization inevitably the social planner will have to confront equity issues because better performance may not reflect greater effort or greater ability this paper was accepted by serguei netessine operations management

static and dynamic effects of health policy evidence from the vaccine industry public policies designed to increase utilization of existing technologies may also affect incentives to develop new technologies this paper investigates this phenomenon by examining policies designed to increase usage of preexisting vaccines i find that these policies were associated with a 2 5 fold increase in clinical trials for new vaccines for several diseases the induced innovation is socially wasteful though small in magnitude in one case however the dynamic social welfare benefits from induced innovation exceed the policies static benefits from increasing vaccination with existing technology these findings underscore the importance of including technological progress in economic analysis of public policy

bargaining with deadlines and imperfect player control anecdotal and experimental evidence suggests that bargaining sessions subject to deadlines often begin with cheap talk and rejected proposals agreements if they are reached at all tend to be concluded near the deadline we attempt to capture and explain these phenomena in a strategic bargaining model that incorporates a bargaining deadline the possibility of strategic delay and a lack of perfect player control over the timing of offers imperfect player control is generated by an exogenous uniformly distributed random delay in offer transmission our model has a symmetric markov perfect equilibrium unique at almost all nodes in which players adopt strategic delay early in the game make and reject offers later on and reach agreements late in the game if at all in equilibrium players miss the deadline with positive probability the expected division of the surplus is unique and close to an even split

peers at work we study peer effects in the workplace specifically we investigate whether how and why the productivity of a worker depends on the productivity of coworkers in the same team using high frequency data on worker productivity from a large supermarket chain we find strong evidence of positive productiv ity spillovers from the introduction of highly productive personnel into a shift worker effort is positively related to the productivity of workers who see him but not workers who do not see him additionally workers respond more to the presence of coworkers with whom they frequently interact we conclude that social pressure can partially internalize free riding externalities that are built into many workplaces jel j24 l81 m54

can losing lead to winning individuals groups and teams who are behind their opponents in competition tend to be more likely to lose in contrast we show that through increasing motivation being slightly behind can actually increase success analysis of more than 18 000 professional basketball games illustrates that being slightly behind at halftime leads to a discontinuous increase in winning percentage teams behind by a point at halftime for example actually win more often than teams ahead by one or approximately six percentage points more often than expected this psychological effect is roughly half the size of the proverbial home team advantage analysis of more than 45 000 collegiate basketball games finds consistent though smaller results experiments corroborate the field data and generalize their findings providing direct causal evidence that being slightly behind increases effort and casting doubt on alternative explanations for the results taken together these findings illustrate that losing can sometimes lead to winning this paper was accepted by peter wakker decision analysis

ethical spillovers in firms evidence from vehicle emissions testing in this paper we explore how organizations influence the unethical behavior of their employees using a unique data set of over three million vehicle emissions tests we find strong evidence of ethical spillovers from firms to individuals when inspectors work across different organizations they adjust the rate at which they pass vehicles to the norms of those with whom they work these spillovers are strongest at large facilities and corporate chains and weakest for the large volume inspectors these results are consistent with the economics literature on productivity spillovers from organizations and peers and suggest that managers can influence the ethics of employee behavior through both formal norms and incentives the results also suggest that employees have persistent ethics that limit the magnitude of this influence these results imply that if ethical conformity is important to the financial and legal health of the organization managers must be vigilant in their hiring training and monitoring to ensure that employee behavior is consistent with firm objectives

to see is to believe common expectations in experimental asset markets abstract we experimentally manipulate agents information regarding the rationality of others in a setting in which previous studies have found irrationality to be present namely the asset market experiments introduced by smith et al 1988 recent studies suggest that mispricing in such markets may be an artefact of confusion which can be reduced by training subjects to understand the diminishing fundamental value we reconsider this view and propose that when it is made public knowledge that training has occurred this may also reduce uncertainty over the behavior of others and facilitate the formation of common expectations our design disentangles the direct effect of training from the indirect effect of its public knowledge and our results demonstrate a distinct and statistically significant effect of public knowledge over and above that of training alone

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

tournaments without prizes evidence from personnel records we use a quasi experimental research design to study the effect of giving workers feedback on their relative performance the setting is a firm in which workers are paid piece rates and where for exogenous reasons management begins to reveal to workers their relative position in the distribution of pay and productivity we find that merely providing this information leads to a large and long lasting increase in productivity that is costless to the firm our findings are consistent with the interpretation that workers incipient concerns about their relative standing are activated by information about how they are performing relative to others this paper was accepted by olav sorenson organizations

in search of workers real effort reciprocity a field and a laboratory experiment we present a field experiment to assess the effect of own and peer wage variations on actual work effort of employees with hourly wages work effort neither reacts to an increase of the own wage nor to a positive or negative peer comparison this result seems at odds with numerous laboratory experiments that show a clear own wage sensitivity on effort in an additional real effort laboratory experiment we show that explicit cost and surplus information that enables an exact calculation of an employer s surplus from the work contract is a crucial prerequisite for a positive wage effort relation this demonstrates that an employee s reciprocity requires a clear assessment of the surplus at stake jel c91 c92 j41

shirking and choking under incentive based pressure a behavioral economic theory of performance production abstract significant empirical evidence exists within psychology and economics that greater incentives under pressure can lead to lower performance outcomes however standard economic theory does not account for this possibility efficiency wage models for example conclude a positive relationship between wage incentives and productivity while efficiency wage models are shown to describe productivity behavior in numerous settings said models do not describe labor markets featuring counterproductive performance pressure we put forth a theoretical model of performance production in which performance incentives induce productive effects and counterproductive effects the model treats explicit monitoring and distraction as distinct counterproductive processes within a cohesive theory of performance production in settings featuring performance pressure we find that higher levels of performance contingent compensation may decrease not only labor output i e likelihood of task success but also labor input i e effort if counterproductive processes decrease the marginal effectiveness of effort sufficiently the latter finding challenges a common view that performance decrements under pressure occur despite greater effort levels

work environment and individual background explaining regional shirking differentials in a large italian firm the prevalence of shirking within a large italian bank appears to be characterized by significant regional differentials in particular absenteeism and misconduct episodes are substantially more prevalent in the south we consider a number of potential explanations for this fact different individual backgrounds group interaction effects sorting of workers across regions differences in local attributes different hiring policies and discrimination against southern workers our analysis suggests that individual backgrounds group interaction effects and sorting effects contribute to explaining the north south shirking differential none of the other explanations appears to be of first order importance i introduction whether individual behavior is determined by group interactions or by individual background is undoubtedly a fundamental question for the social sciences this question presented itself forcefully when we stumbled onto the following piece of evidence there appear to be significant regional differentials in the prevalence of shirking among the employees of a large italian bank in particular absenteeism and misconduct episodes are considerably more frequent in the southern branches of the bank in this paper we examine several potential explanations for this fact first individual preferences for shirking versus working may differ according to one s region of hirth we will refer to this hj othesis as one of different individual hackgrounds the second possibility is one of locational sorting low shirking types may tend to migrate to the north high shirking types may tend to migrate to the south or hoth third the northern and southern

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

disappointment aversion and social comparisons in a real effort competition we present an experiment to investigate the source of disappointment aversion in a sequential real effort competition specifically we study the contribution of social comparison effects to the disappointment aversion previously identified in a two person real effort competition gill d and v prowse a structural analysis of disappointment aversion in a real effort competition american economic review 102 2012 469 503 to do this we compare social and asocial versions of the gill and prowse experiment where the latter treatment removes the scope for social comparisons if disappointment aversion simply reflects an asymmetric evaluation of losses and gains we would expect it to survive in our asocial treatment alternatively if losing to or winning against another person affects the evaluation of losses gains as we show would be theoretically the case under asymmetric inequality aversion we would expect treatment differences we find behavior in social and asocial treatments to be similar suggesting that social comparisons have little impact in this setting unlike in gill and prowse we do not find evidence of disappointment aversion jel c91 d12 d81 d84

consumption network effects in this paper we study the relevance and mechanics of consumption network effects we use long panel data on the entire danish population to construct a measure of consumption based on administrative tax records and define the peer groups in terms of workplace occupation education and age we then apply an iv strategy and fixed effect models to recover the effects our instruments arise naturally from the network structure and firms shocks the estimated effects are statistically significant and relevant for policies as they generate non negligible multiplier effects further the results are consistent with a keeping up model

participation inertia in r d tax incentive and subsidy programs we examine how persistent firms participation is in rd the use of tax credits in contrast is unrelated to a firm s productivity our results suggest that r d tax incentives and r d subsidies are not substitutes and that any unintended misallocation of support is likely to persist

monitoring motivation and management the determinants of opportunistic behavior in a field experiment economic models of incentives in employment relationships are based on a specific theory of motivation employees are rational cheaters who anticipate the consequences of their actions and shirk when the marginal benefits exceed costs we investigate the rational cheater model by observing how experimentally induced variation in monitoring of telephone call center employees influences opportunism a significant fraction of employees behave as the rational cheater model predicts a substantial proportion of employees however do not respond to manipulations in the monitoring rate this heterogeneity is related to variation in employee assessments of their general treatment by the employer jel d2 j2 l2 l8 m12

clean evidence on peer effects we study subjects who were asked to fill letters into envelopes with a remuneration independent of output in the pair treatment two subjects worked at the same time in the same room and peer effects were possible in the single treatment subjects worked alone and peer effects were ruled out we find evidence of peer effects in the pair treatment because the standard deviations of output are smaller within pairs than between pairs moreover average output is higher in the pair treatment thus peer effects raise productivity finally low productivity workers are the most sensitive to the behavior of peers

network effects and welfare cultures we empirically examine the role of social networks in welfare participation using data on language spoken at home to better infer networks within an area our empirical strategy asks whether being surrounded by others who speak the same language increases welfare use more for those from high welfare using language groups this methodology allows us to include local area and language group fixed effects and to control for the direct effect of being surrounded by one s language group these controls eliminate many of the problems in previous studies the results strongly confirm the importance of networks in welfare participation

interactions between workers and the technology of production evidence from professional baseball this paper examines how the effort choices of workers within the same firm interact with each other in contrast to the existing literature we show that workers can affect the productivity of their co workers based on income maximization considerations rather than relying on behavioral considerations such as peer pressure social norms and shame theoretically we show that a worker s effort has a positive effect on the effort of co workers if they are complements in production and a negative effect if they are substitutes the theory is tested using panel data on the performance of baseball players from 1970 to 2003 the empirical analysis shows that a player s batting average significantly increases with the batting performance of his peers but decreases with the quality of the team s pitching furthermore a pitcher s performance increases with the pitching quality of his teammates but is unaffected by the batting output of the team these results are inconsistent with behavioral explanations which predict that shirking by any kind of worker will increase shirking by all fellow workers the results are consistent with the idea that the effort choices of workers interact in ways that are dependent on the technology of production these findings are robust to controlling for individual fixed effects and to using changes in the composition of one s co workers in order to produce exogenous variation in the performance of one s peers

transparency inequity aversion and the dynamics of peer pressure in teams theory and evidence we provide an explanation for peer pressure in teams based on inequity aversion analyzing a two period model with two agents we find that the effect of inequity aversion strongly depends on the information structure when contributions are unobservable agents act as though they were purely selfish however when contributions are made transparent at an interim stage agents exert higher efforts in the first period and adjust their efforts according to the interim information in the second period this form of peer pressure reduces free riding and thus more efficient outcomes are attained the results are confirmed in a real effort experiment

the labor market impact of immigration in western germany in the 1990 s in this article we estimate the wage and employment effects of recent immigration in western germany using administrative data for the period 1987 2001 and a labor market equilibrium model we find that the substantial immigration of the 1990s had very little adverse effects on native wages and on their employment levels instead it had a sizeable adverse employment effect on previous immigrants as well as a small adverse effect on their wages these asymmetric results are partly driven by a higher degree of substitution between old and new immigrants in the labor market and in part by the rigidity of wages in less than flexible labor markets in a simple counter factual experiment we show that in a world of perfect wage flexibility and no unemployment insurance the wage bill loss of old immigrants would be much smaller

mass migration unions and government intervention the widening gap between the dismal economic situation in the less developed economies and the economic prospects of migrants to western economies has generated a potential for mass migration at the same time the developed economies have experienced high and persistent unemployment among their unskilled workers who would have to compete with new immigrants we use a model that distinguishes labor markets by skill and concentrate on the imperfectly competitive mechanism of wage determination in the unskilled labor market to demonstrate that additional immigration might be beneficial precisely because of potential replacement effects if the wages of skilled workers are positively affected by additional unskilled labor this may lead to higher employment and output our results thus qualify standard economic reasoning based on competitive models or on the literature on rural urban migration in developing countries

pushing subjects beyond rationality with more alternatives in experimental auctions the use of experimental economics in valuation of market and nonmarket goods has grown over the past few years the ability of experimental auctions eus to reveal consumer preferences and their malleability has been praised in previous literature because of the high cost of conducting eus researchers usually present multiple products to participants determining how many products to present has no clear guideline the results of this study show that subjects do not value products the same way across different number of options offered to them the main indicator is the increasing variance in responses for a benchmark product when more products are available with an econometric specification allowing for heteroscedasticity as a function of the number of product offerings the results indicate that the number of goods available for bidding is not to be taken as a trivial task in experimental design for value elicitation

international trade and labor migration a theory of the relationship between international trade and labor mobility is developed that takes into account five characteristics of such migration including its temporary nature differences between migrant and native labor the acceptance of unpredictable conditions of employment by migrant labor the ready availability of further labor resources and international capital mobility particular attention is paid to the role of international labor migration in helping to insulate native populations from the rigors of industrial fluctuations and in helping to preserve import competing industries that would have succumbed without the availability of cheap imported labor

international migration versus foreign investment in the presence of unemployment abstract this paper extends the standard two factor one good model of international factor movements to include unemployment due to a minimum income guarantee within the capital abundant country from this country s perspective we establish important departures from previous full employment results most notably our analysis shows that 1 free factor mobility is worse than no mobility 2 the optimal degree of labour migration is zero and 3 national welfare can always be maximized by an optimal flow of capital the analysis is then extended to examine 1 illegal migration 2 subsidization of employment and 3 alternative views of unemployment

random interactions in the chamber legislators behavior and political distance abstract i investigate the role of social interaction among members of parliament mps and the impact of such interaction on the political distance between parties using the random allocation of seats in the icelandic parliament i find that mp s voting and speech behaviors are affected by the behavior of legislators seated nearby i also show that greater random exposure to mps from different parties ultimately reduces the political distance between parties similar evidence is found using historical data for the u s house of representatives by exploiting the introduction of a lottery mechanism to determine desk assignments in 1845 i argue that random seating arrangements could constitute a low cost way of reducing differences within the political arena

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

tempus fugit time pressure in risky decisions we study the effects of time pressure on risky decisions for pure gain prospects pure loss prospects and mixed prospects involving both gains and losses in two experiments we find that time pressure has no effect on risk attitudes for gains but increases risk aversion for losses for mixed prospects subjects become simultaneously more loss averse and more gain seeking under time pressure depending on the framing of the prospects the results suggest the importance of aspiration levels and thus the overall probability to break even under time pressure we discuss the implications of our findings for decision making situations that involve time pressure

are workers willing to pay to join a better team using data from the major league baseball free agent market this study is the first to show that the productivity expected of the team a worker will join produces a significant negative compensating wage differential the younger workers in the sample drive this result trading 25 of their wages to join teams with an expected productivity one standard deviation higher this investment can be recouped if a reasonable increase in human capital occurs these results are robust to contract length wage simultaneity and indicate that investment in human capital motivates the observed tradeoff suggesting a new pathway through which human capital accumulation can affect wages reliable measures of workers own past productivity and the productivity expected of a worker s future team provide key advantages to identifying these effects jel j31 j24 m54

choking under time pressure the influence of deadline dependent bonus and malus incentive schemes on performance abstract many economically relevant activities are executed under notable time pressures incentivized deadlines are often the reason people feel pressured in such an environment individual preferences can predict performance through a laboratory experiment we examine the predictive power of individual loss aversion on performance under deadline dependent incentives participants worked on a real effort task under two payoff equivalent contracts framed in bonus and malus terms the results show lower performance for individuals with high loss aversion when working under a malus contract these individuals needed more time to reply and were less able to avoid maluses than other individuals choking can explain this observed behavior

no excuses for good behavior volunteering and the social environment abstract we study the effect of the social environment on the quantity and quality of voluntary labor contributions by extending benabou and tirole s 2006 image signaling framework we derive theoretical predictions on time volunteered given 1 the availability of excuses to stop volunteering and 2 the presence of an authority figure we test these predictions in an experiment where laboratory subjects are directly involved in a local nonprofit operation we find that in the absence of excuses to stop volunteering subjects volunteer longer without working less productively this increase is partially driven by subjects reluctance to be the first to stop volunteering the presence of an authority figure has little impact but the presence of peers has a positive and significant impact

under pressure gender differences in output quality and quantity under competition and time constraints gender gaps in income and level of position in the workplace are widespread one explanation for this inequality is that the genders perform dierently under competi tive conditions as previous experimental studies have found a signi cant gender gap in competitive tasks that are perceived to favor men in this paper we use a verbal task that is perceived to favor women and nd no gender dierence under competition per se we also reject the hypothesis that a stereotype threat explains the inability of women to improve performance under competition we propose an alternative expla nation for gender inequality namely that women and men respond dierently to time pressure with reduced time pressure competition in verbal tasks greatly increases the performance of women such that women signi cantly outperform men this eect appears largely due to the fact that extra time in a competition improves the quality of women s work leading them to make fewer mistakes on the other hand men use this extra time to increase the quantity of work which results in a greater number of mistakes

r d policy agency costs and innovation in personalized medicine the orphan drug act oda was designed to spur the development of drugs for rare diseases in principle its design also incentivizes pharmaceutical firms to develop drugs for rare subdivisions of more prevalent diseases i find that in response to this incentive firms develop drugs for oda qualifying subdivisions of non rare diseases the impact in these tailored drug markets represents half of the total r d response to the oda i also find that 10 percent of the innovation in subdivided disease drugs induced by the oda would have been conducted without the policy while modest in size this inefficiency suggests that agency problems should be considered when designing innovation policy

tackling the european migration problem this paper will begin by examining the historical pattern of migration and the empirical dimension of western europes migration problem a next step examines the labor market issues and impacts on natives as western europe perceives them the paper concludes with a discussion of policy issues and options excerpt

immigration unemployment and pensions this paper examines the impact of immigration on a host country with welfare state arrangements that support both the unemployed and the elderly it is shown that low skilled immigration increases the unemployment rate furthermore it harms the low skilled native population and benefits the high skilled natives and pensioners nevertheless as under competitive labor markets immigration generates an unambiguous gain for the native population as a whole howe er in contrast to the findings under full employment this gain can be dampened by an expansion of the pension system

the tradeoff between performance and quitting in high power tournaments tournaments may be characterized by the performance they induce as well as by the rate of quitting and dropouts of participants although most of the attention in the literature is on the performance induced by high power incentives there are many daily situations in which dropouts and quitting are a major concern using a field experiment in schools and a model of dynamic tournament we examine the effect of different levels of rewards on the rate of quitting our experiment indicates that there is a possible tradeoff between performance and quitting strong incentives tournaments induced participants to exert more effort and exhibit a better performance but at the same time it induces a higher rate of quitting we present a multi stage tournament model that gives rise to a similar characterization jel c93 c73 d8 j30

incentive systems in a real effort experiment in the reported experiment different payment schemes are examined on their incentive effects payments based on individual team and relative performance are compared subjects conducted computerized tasks that required substantial effort the results show that individual and team payment induced the same effort levels in team production free riding occurred but it was compensated by many subjects providing more effort than in case of individual pay effort was higher but more variable in tournaments while in case of varying abilities workers with relatively low ability worked very hard and drove up effort of the others finally attitudes towards work and other workers differed strongly between conditions

performance in competitive environments gender differences even though the provision of equal opportunities for men and women has been a priority in many countries large gender differences prevail in competitive high ranking positions suggested explanations include discrimination and differences in preferences and human capital in this paper we present experimental evidence in support of an additional factor women may be less effective than men in competitive environments even if they are able to perform similarly in non competitive environments in a laboratory experiment we observe as we increase the competitiveness of the environment a significant increase in performance for men but not for women this results in a significant gender gap in performance in tournaments while there is no gap when participants are paid according to piece rate this effect is stronger when women have to compete against men than in single sex competitive environments this suggests that women may be able to perform in competitive environments per se

reference points and effort provision a key open question for theories of reference dependent preferences is what determines the reference point one candidate is expectations what people expect could affect how they feel about what actually occurs in a real effort experiment we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision we find that effort provision is significantly different between treatments in the way predicted by models of expectation based reference dependent preferences if expectations are high subjects work longer and earn more money than if expectations are low

do people anticipate loss aversion there is growing interest in the use of loss contracts that offer performance incentives as up front payments that employees can lose standard behavioral models predict a trade off in the use of loss contracts employees will work harder under loss contracts than under gain contracts but anticipating loss aversion they will prefer gain contracts to loss contracts in a series of experiments we test these predictions by measuring performance and preferences for payoff equivalent gain and loss contracts we find that people indeed work harder under loss than gain contracts as the theory predicts surprisingly rather than a preference for the gain contract we find that people actually prefer loss contracts in exploring mechanisms for our results we find suggestive evidence that people do anticipate loss aversion but select into loss contracts as a commitment device to improve performance using one bias loss aversion to address another dynamic inconsistency data as supplemental material are a

social interactions in high school lessons from an earthquake after an earthquake hit southern italy in 1980 young men from certain towns were exempted from compulsory military service we show that the exemption raised high school graduation rates of boys by more than 2 percentage points we do this by comparing high school graduation rates of young exempt men and older nonexempt men from the least damaged areas and men of the same age groups from nearby towns that were not hit by the quake similar comparisons show that graduation rates of young women in the affected areas also increased since in italy women are not subject to the draft the findings suggest the presence of spillover effects jel i21 j13