Absolute and relative rewards for individuals in team production

Abstract

This paper examines the use of prizes as an incentive device in team production environments. We reward team members in two different ways. First, heterogeneously endowed individuals are given a monetary prize for high absolute levels of contributions. Secondly, a prize is given for high levels of contributions relative to endowment—token endowments represent abilities to contribute to the team. We find that both prize treatments significantly increase group contributions, but rewarding individuals based on absolute contributions also widens the dispersion between the high‐contributor and the remainder of the group. Contributions are highest when the prize is for high relative contributions, and the dispersion in contributions is lower than with a prize for absolute contributions. Furthermore, these prizes could be self‐funded since giving prizes creates more system‐wide wealth than what the prize costs. These results have implications for work team environments in which prizes given for individual effort towards the group goal could raise overall effort levels. © 1998 John Wiley & Sons, Ltd.

Do competitive bonuses ruin cooperation in heterogeneous teams?

“…22Following the notion from Alchian and Demsetz (1972) that team production can be modeled as a public good problem, Dickinson and Isaac (1998) examine how absolute versus relative individual rewards affect contributions to a team when revenue sharing is present and the individuals are heterogeneous. Likewise, Lawler et al (2001) report some level of “gainsharing” in 53% of surveyed firms, indicating this is a common practice.…”

Relative Feedback Increases Disparities in Effort and Performance in Crowdsourcing Contests

“…Compared to piece-rate schemes, contests, all-pay auctions, and tournaments result in higher variance in individual effort (Cason et al, 2010;Dechenaux et al, 2015;van Dijk, Sonnemans, & van Winden, 2001). Similarly, the contributions to a public good increase in dispersion when individuals are incentivized with tournament rewards for contributing (Dickinson & Isaac, 1998). These outcomes can be explained with demographic differences and heterogeneous preferences towards winning, risk, losses, and inequality (Dechenaux et al, 2015).…”

Rank‐order Competition in the Voluntary Provision of Impure Public Goods

“…One type of mechanism that has been proposed to alleviate free-riding involves sanctions and rewards. These sanctions and rewards, usually based on some form of rank-ordering of contributions, are either experimenter-imposed (e.g., Croson et al 2015;Dickinson 2001;Dickinson and Isaac 1999;Falkinger et al 2000;Groves and Ledyard 1977;Harbring and Irlenbusch 2005;Orrison, Schotter, and Weigelt 2004), or participant-imposed (e.g., Fehr and Gächter 2000;Masclet et al 2003;Noussair and Tucker 2005). However, even though in some of these studies competition does occur, it is not the main focus and therefore the observed experimental results cannot provide a direct answer whether competition is capable of increasing voluntary contributions on its own.…”