Spillovers from incentive schemes on distributional preferences and expectations

Abstract

In the workplace, incentive schemes may spill over on distributional preferences and beliefs, which underlie an employee’s willingness to cooperate. In an online experiment, we analyze how different incentive schemes and the corresponding feedback affect distributional preferences and beliefs. In six different treatments, we vary the incentive scheme (competitive vs team incentives) for a real-effort task and the feedback participants receive at the end of the real-effort task. Subsequently, we measure participants’ social value orientation (SVO), a proxy for distributional preferences, and the corresponding beliefs about other’s SVO. If no feedback is provided, participants show stronger SVOs if they are incentivized by team incentives in comparison to piece-rate remuneration. Surprisingly, this positive effect prevails under competitive incentives without feedback. With feedback about relative performance, the spillover effects differ between the incentive schemes. Under competitive incentives, participants show lower SVOs (negative spillovers), but only for low performers. Under team incentives, we find negative spillovers on preferences for high performers and positive spillovers for low performers. We find no evidence for spillovers on beliefs.