Journal of Economics and Management Volume 18, No. 2 September, 2022

Monetary Incentives, Effort and Payoff Feedback: Differential Effects on Individuals’ Effort Choices in a Group

Mien-Ling Chen

Department of Business Administration, Hsing Wu University, New Taipei City, Taiwan

Abstract

This study experimentally examines how effort and payoff feedback promote or suppress an individual effort in a group varying the size of monetary incentives, especially using bonuses as a reward and punishment simultaneously. Based on agency theory, equity theory, and loss aversion of prospect theory, I conducted a 2 × 2 between-subjects design with four experimental conditions, and participants were randomly assigned to four-member groups. Results show that under a large monetary reward scheme, providing feedback information about group members' effort levels and payoffs motivates individuals to exert higher levels of effort to increase profits and earn a bonus, whereas such feedback information is ineffective under a small monetary reward scheme, and demotivates individuals to exert lower levels of effort. The findings highlight the importance of taking the concerns of group members’ bonuses into account under a small monetary reward scheme, rewarding an equal bonus to group members who meet the average effort of the group may do more harm than good, especially in a full feedback condition.

Keywords：Monetary Incentives, Feedback, Individual Effort, Group

JEL Classifications：C72, D81, M52.

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