On the Relative Efficiency of Performance Pay and Social Incentives

In contrast to the simplifying assumption of selfishness, social incentives have been shown to play a role in economic interactions. Before incorporating social incentives into models and policies, however, one needs to know their efficiency relative to standard pay-for-performance incentives. We report evidence from a large field experiment comparing the effectiveness of contingent and non-contingent (“social”) incentives in eliciting costly effort. The company with which we worked sent 7,250 letters asking customers to complete a survey. Some letters contained cash amounts ranging from $1 to $30, whereas others promised to pay upon compliance. We compare the response rates and cost effectiveness of these contingent and social incentives with each other and with a no-incentives control. In line with previous findings, we find that social incentives generated some effort: small amounts increased the response rate with respect to the control, but the size of the reward had a relatively minor effect. In contrast, the response rate for contingent incentives was low for small amounts but increased rapidly as incentives increased. Importantly, for (almost) any given response rate social incentives were more costly than contingent incentives.