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The Selten School of Behavioral Economics pp 221–241Cite as

The Analysis of Incentives in Firms: An Experimental Approach

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Abstract

“Behaviour cannot be invented in the armchair. It has to be observed.” This statement by Reinhard Selten (1998, p. 414) is particularly true and relevant when designing organisations and incentive schemes with the aim to motivate employees and facilitate coordination and cooperation in firms. Experiments are a powerful tool to observe behaviour under controlled conditions and thereby to draw inferences about causal influences on behaviour.

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Notes

  1. 1.

    The results presented in this section are part of a larger research project, see Irlenbusch and Sliwka (2005). Excellent overviews about theoretical and empirical findings on various incentive schemes are provided by Gibbons (1998), Lazear (1999), and Prendergast (1999).

  2. 2.

    Since we implemented the constraint of a non-negative fixed-wage component α, it is not possible to “sell the shop”, i.e., to set up contracts that sell the working output to the agent. Therefore the here presented optimal contract does not induce the “first-best” working effort, i.e., the effort level that would maximize the sum of the principal’s and agent’s payoff: e eff = k/c.

  3. 3.

    For experimental investigations on the influence of tournament size, prize structure, or the prize spread, see Harbring and Irlenbusch (2008, 2010).

  4. 4.

    We assume that sabotage is costlier than productive effort resembling the fact that in the workplace an agent usually has to exert some extra effort to conceal the destructive activity at least in front of the employer. Agents are modeled symmetrically. For a discussion of the impact of sabotage when agents are asymmetric see Harbring et al. (2007).

  5. 5.

    A lump sum of 90 Taler is deducted from the principal’s payoff in each round which models part of the cost of the implemented wage scheme.

  6. 6.

    This section is part of a larger research project on the impact of team decision making on efficient coordination in coordination games. See Feri et al. (2010).

  7. 7.

    We use the term “group” to refer to the entity of players who interact with each other, whereas “team” refers to three subjects who have to choose one number. The “group size” in our experiment is always five, i.e., the coordination game is played either by five individuals or by five teams.

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Acknowledgment

The authors are grateful for the delicious cakes and the inspiring atmosphere provided by Café Jansen (Cologne), Café Sturm (Bonn), Café Zum Roten Turm (Erfurt), and Café Sacher (Innsbruck). Following the example of Reinhard Selten the authors spent a considerable number of hours in these cafés where many of the ideas discussed here were born.

Author information

Authors and Affiliations

  1. Lehrstuhl für Human Resource Management, Fakultät für Wirtschaftswissenschaften, Karlsruhe Institute of Technology, Waldhornstr. 27, 76131, Karlsruhe, Germany

    Christine Harbring

  2. Seminar für Allgemeine Betriebswirtschaftslehre, Unternehmensentwicklung und Wirtschaftsethik, Universität zu Köln, Herbert-Lewin-Str. 2, 50931, Köln, Germany

    Bernd Irlenbusch

  3. Seminar für Allgemeine Betriebswirtschaftslehre und Personalwirtschaftslehre, Universität zu Köln, Herbert-Lewin-Str. 2, 50931, Köln, Germany

    Dirk Sliwka

  4. Institut für Finanzwissenschaft, University of Innsbruck, Universitätsstrasse 15, A-6020, Innsbruck, Austria

    Matthias Sutter

Authors
  1. Christine Harbring
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  2. Bernd Irlenbusch
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  3. Dirk Sliwka
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  4. Matthias Sutter
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Corresponding author

Correspondence to Bernd Irlenbusch .

Editor information

Editors and Affiliations

  1. Magdeburg, Otto-von-Guericke-Universität, Magdeburg, 39106, Germany

    Abdolkarim Sadrieh

  2. Staatswissenschaftliches, (Volkswirtschaftliches) Seminar, Universität Köln, Albertus-Magnus-Platz, Köln, 50923, Germany

    Axel Ockenfels

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Harbring, C., Irlenbusch, B., Sliwka, D., Sutter, M. (2010). The Analysis of Incentives in Firms: An Experimental Approach. In: Sadrieh, A., Ockenfels, A. (eds) The Selten School of Behavioral Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-13983-3_14

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  • DOI: https://doi.org/10.1007/978-3-642-13983-3_14

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