Menus of Contracts Determine Sorting Patterns
Using a real-effort task laboratory experiment, we investigate how the menu of available contracts affects worker self-selection into pay-for-performance contracts based on characteristics such as productivity and risk attitude. We provide evidence that the same contract attracts different types of workers for different sets of available alternatives. This insight, which is consistent with theoretical considerations, is crucial for organizations, because the type of workers that is attracted by a given incentive contract depends on the contracts offered by competing firms. Moreover, available alternative contracts determine the scope of worker types that can be attracted with a particular contract. Another implication is that organizations can design menus of contracts to induce fine-tuned multidimensional sorting patterns, which facilitates optimal assignment of workers to tasks.
|Keywords||Incentives, Multidimensional sorting, Lab experiment|
|JEL||Laboratory, Individual Behavior (jel C91), Criteria for Decision-Making under Risk and Uncertainty (jel D81), Asymmetric and Private Information (jel D82), Economics of Gender; Non-labor Discrimination (jel J16), Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc. (jel J31)|
|Journal||Journal of Economic Psychology|
Bernard, M, Dohmen, T., Non, J.A., & Rohde, I.M.T. (2019). Menus of Contracts Determine Sorting Patterns. Journal of Economic Psychology, 72, 293–311. Retrieved from http://hdl.handle.net/1765/122260