The Negative Consequences of Loss-Framed Performance Incentives
Abstract/Contents
- Abstract
- Behavioral economists have proposed that incentive contracts result in higher productivity when bonuses are "loss framed" prepaid then clawed back if targets are unmet. We test this claim in a large-scale field experiment. Holding financial incentives fixed, we randomized the pre- or post-payment of sales bonuses at 294 car dealerships. Prepayment was estimated to reduce sales by5%, generating a revenue loss of $45 million over 4 months. We document, both empirically and theoretically, that negative effects of loss framing can arise due to an increase in incentives for "gaming" behaviors. Based on these claims, we reassess the common wisdom regarding the desirability of loss framing.
Description
| Type of resource | text |
|---|---|
| Date created | August 10, 2021 |
Creators/Contributors
| Author | Blank, Charlotte |
|---|---|
| Author | Pierce, Lamar |
| Author | Rees-Jones, Alex |
| Organizer of meeting | Bernheim, B. Douglas |
| Organizer of meeting | Beshears, John |
| Organizer of meeting | Crawford, Vincent |
| Organizer of meeting | Laibson, David |
| Organizer of meeting | Malmendier, Ulrike |
Subjects
| Subject | economics |
|---|---|
| Genre | Text |
| Genre | Working paper |
| Genre | Grey literature |
Bibliographic information
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- User agrees that, where applicable, content will not be used to identify or to otherwise infringe the privacy or confidentiality rights of individuals. Content distributed via the Stanford Digital Repository may be subject to additional license and use restrictions applied by the depositor.
- License
- This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).
Preferred citation
- Preferred citation
- Blank, C., Pierce, L., and Rees-Jones, A. (2022). The Negative Consequences of Loss-Framed Performance Incentives. Stanford Digital Repository. Available at https://purl.stanford.edu/rz763td7567
Collection
SITE Conference 2021
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