The Provision of Incentives in Firms
Abstract
This paper provides an overview of the existing theoretical and empirical work on the provision of incentives. It reviews the costs and benefits of many types of pay-for-performance, such as piece rates, promotions, and long-term incentives. The main conclusions are (i) while there is considerable evidence that individuals respond to pay-for-performance, there is less evidence that contracts are designed as predicted by the theory, (ii) there has been little progress made in distinguishing amongst plausible theories, and (iii) we still know little about how incentives are provided to workers whose output is difficult to measure.
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There is a monotonic, increasing relationship between financial rewards for an activity and motivation expected.
“with a monotonic, increasing relationship between financial rewards for an activity and motivation expected (Prendergast 1999).”
From Unintended reward costs: the effectiveness of customer referral reward programs for innovative products and services (2019) · cites this paper as Prendergast 1999
Cites
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Aghion, P., Caroli, E., & García-Peñalosa, C. (1999) · Journal of Economic Literature · doi:10.1257/jel.37.4.1615 · Cited by 1,848 · see citing works
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Incentives and Prosocial Behavior
Bénabou, R., & Tirole, J. (2006) · American Economic Review · doi:10.1257/aer.96.5.1652 · Cited by 3,357 · see citing works
Inequality and Economic Growth: The Perspective of the New Growth Theories
Aghion, P., Caroli, E., & García-Peñalosa, C. (1999) · Journal of Economic Literature · doi:10.1257/jel.37.4.1615 · Cited by 1,848 · see citing works
A survey of experimental research on contests, all-pay auctions and tournaments
Dechenaux, E., Kovenock, D., & Sheremeta, R. M. (2015) · Experimental Economics · doi:10.1007/s10683-014-9421-0 · Cited by 706 · see citing works
The effect of financial incentives on the quality of health care provided by primary care physicians
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The Effect of Evaluation on Teacher Performance
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Tax farming redux: experimental evidence on performance pay for tax collectors
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Test scores, subjective assessment, and stereotyping of ethnic minorities
Burgess, S., & Greaves, E. (2013) · Journal of Labor Economics · doi:10.1086/669340 · Cited by 249 · see citing works
Information and Employee Evaluation: Evidence from a Randomized Intervention in Public Schools
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Dose, D. B., Walsh, G., Beatty, S. E., & Elsner, R. (2019) · Journal of the Academy of Marketing Science · doi:10.1007/s11747-019-00635-z · Cited by 60 · see citing works
Formal and Informal Contracting: Theory and Evidence
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The Effect of Nonlinear Incentives on Performance: Evidence from “Econ 101”
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- Authors
- Prendergast, C.
- Affiliations
- National Bureau of Economic Research (US)
- Corresponding author
- Prendergast, Canice
- Venue
- Journal of Economic Literature
- Publisher
- American Economic Association
- Published
- 1999-03-01
- Volume
- 37
- Issue
- 1
- Pages
- 7-63
- ISSN
- 0022-0515 (ISSN-L)
- OpenAlex
- W2125313549
- Cited by
- 3,338
- References
- 4
- Citations by year
- 2026: 44 · 2025: 60 · 2024: 87 · 2023: 79 · 2022: 105 · 2021: 89 · 2020: 68 · 2019: 104 · 2018: 131 · 2017: 120 · 2016: 146 · 2015: 143 · 2014: 150 · 2013: 169 · 2012: 172
- FWCI
- 214.27
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Journal of Economic Literature (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Management Information Systems › Accounting and Organizational Management
- Social Sciences › Safety Research › Experimental Behavioral Economics Studies
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Labor market dynamics and wage inequality
- Keywords
- incentive contracts, performance-based pay, piece rates, promotion, long-term incentives, contract design, unobservable effort, agency theory
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