Chapter 2 Can Group-Incentives Without Participation Survive the Free-Rider Problem? A View From the Lab

Purpose Group incentive schemes have been shown to be positively associated with firm performance but it remains an open question whether this association can be explained by the motivating characteristics of the group-incentive scheme itself, or if this is due to factors that tend to accompany group-incentive schemes. We use a controlled experiment to directly test if group-incentive schemes can motivate sustained individual effort in the absence of rules, norms, and institutions that are known to mitigate free-riding behavior. Design/methodology/approach We use a controlled lab experiment that randomly assigns subjects to one of three compensation contracts used to incentivize an onerous effort task. Two of the compensation contracts are group-incentive schemes where subjects have an incentive to free-ride on the efforts of their coworkers, and the third (control) is a flat-wage contract. Findings We find that both group-incentive schemes resulted in sustained, higher performance relative to the flat-wage compensation contract. Further, we do not find evidence of free-riding behavior under the two group-incentive schemes. Research limitations/implications Although we do find sustained cooperation/performance over the three work periods of our experiment under the group-incentive schemes, further testing would be required to evaluate whether group-incentive schemes can sustain cooperation over a longer time horizon without complementary norms, policies, or institutions that mitigate free-riding. Originality/value By unambiguously showing that group-incentive schemes can, by themselves, motivate workers to provide sustained levels of effort, this suggests that the “1/ n problem” may be, in part, an artifact of the rational-actor modeling conventions.