| Abstract: |
We use natural experiments – plausibly exogenous, anticipated increases in the
piece rate – to study how effort responds to incentives. Our first finding,
like some previous studies, lends little support to the view that incentives
increase effort: raising the piece rate has zero effect on total daily effort.
Previous studies have speculated that changes in motivation over the course of
the workday, caused by the increase in the piece rate, may lead to this
result, but have relied on data aggregated to the day. Our data allow us to
look within the workday. We find that workers do respond to incentives within
the day: they work significantly harder in early hours of work, but
significantly less hard later on, with a net effect of zero on total daily
effort. We consider different possible explanations for this behavior. The
most parsimonious explanation is a model in the spirit of Loewenstein and
O'Donoghue (2005), in which a cognitive system, assumed to behave like the
standard economic model predicts, is in conflict with the affective system. We
review evidence from psychology and neuroscience to argue that the affective
system may be strongly influenced by within-day changes in earnings, relative
to an earnings goal. The affective system cares less about income once the
goal is surpassed, providing an explanation for a drop in effort later in the
day, and for the findings of earlier studies. |