Managers frequently offer unconditional bonuses and profit-sharing payments to their employees. The isolated effects of the former payment type on job satisfaction, in particular, have received little empirical attention. This study uses German panel data and shows that, even when total income...

We study theoretically and experimentally the role of fatigue and recovery within a competitive work environment. At work, agents usually make their effort choice in response to competition and monetary incentives. At the same time, they have to take into account fatigue, which accumulates over...

Consider a principal-agent relationship in which more eort by the agent raises thelikelihood of success. Does rewarding success, i.e., paying a bonus, increase eort inthis case? I nd that bonuses have not only an incentive but also an income eect.Overall, bonuses paid for success may well reduce...

We derive the optimal contract between a principal and a liquidity-constrained agent in a stochastically repeated environment. The contract comprises a court-enforceable explicit bonus rule and an implicit fixed salary promise that must be self-enforcing. Since the agent's rent increases with...

We analyze whether incentives from relative performance pay are reduced or enhanced if a department is possibly terminated due to a crisis. Our benchmark model shows that incentives decrease in a severe crisis, but are boosted given a minor crisis since efforts are strategic complements in the...

Several empirical findings have challenged the traditional trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained.

Civil servants have a reputation for being lazy. However, people's personal experiences with civil servants frequently run counter to this stereotype. We develop a model of an economy in which workers differ in laziness and in public service motivation, and characterise optimal incentive...

Our life is built around coordinating efforts with others. This usually involves incentivizing others to do things, and sustaining our relationship with them. Using the wrong incentives backfires: it lowers effort and tarnishes our relationships. But what constitutes a ‘wrong’ incentive? And...

The career concerns literature predicts that incentives for effort decline as beliefs about ability become more precise (Holmström, 1982/1999). In contrast, we show that effort can increase with belief precision if promotions to better-paid jobs make the returns to reputation non-linear. In...

Gender differences in preferences regarding social relationships and competitive environments are well documented in psychology and economics. Research also shows that social relationships and competition among co-workers are affected by the incentive schemes workers are exposed to. We combine...