Social Preferences and the Response to Incentives: Evidence from Personnel Data

We present evidence on whether workers have social preferences by comparing workers’ productivityunder relative incentives, where individual effort imposes a negative externality on others,to their productivity under piece rates, where it does not. We find that the productivity of theaverage worker is at least 50 percent higher under piece rates than under relative incentives. Weshow that this is due to workers partially internalizing the negative externality their effort imposeson others under relative incentives, especially when working alongside their friends. Under piecerates, the relationship among workers does not affect productivity. Further analysis reveals thatworkers internalize the externality only when they can monitor others and be monitored. This rulesout pure altruism as the underlying motive of workers’ behavior.[...]