A static model of cooperation for group-based incentive plans

Whenever a company implements a group-based incentive plan for the first time, free-riding may destroy trust among employees and harm performance. We propose a static model to describe how employees make the decision of whether to cooperate or not, which considers material rewards and social preferences. Given the deep uncertainty involved, we conjecture that workers apply the Arrow-Hurwicz criterion, which considers a combination of the best- and the worst-case scenarios. We derive a set of hypothesis from this model that we validate using a dataset of 107 effectively implemented incentive plans.

[1]  U. Fischbacher,et al.  Are People Conditionally Cooperative? Evidence from a Public Goods Experiment , 2001 .

[2]  B. Frey,et al.  Motivation, Knowledge Transfer, and Organizational Forms , 2000 .

[3]  D. Kelsey,et al.  Ambiguity in Partnerships , 2004 .

[4]  D. Snidal.  International Cooperation Among Relative-Gains Maximizers , 1991 .

[5]  Casey Ichniowski,et al.  Beyond Incentive Pay: Insiders' Estimates of the Value of Complementary Human Resource Management Practices , 2003 .

[6]  David Kelsey,et al.  Strategic Complements, Substitutes, and Ambiguity: The Implications for Public Goods , 2002, J. Econ. Theory.

[7]  Jeffrey Pfeffer,et al.  The effect of wage dispersion on satisfaction, productivity, and working collaboratively: Evidence from college and university faculty. , 1993 .

[8]  R. Mark Isaac,et al.  Divergent evidence on free riding: An experimental examination of possible explanations , 1984 .

[9]  C. Voss,et al.  Quality management re-visited: a reflective review and agenda for future research , 2002 .

[10]  Kevin Murphy.  Performance Standards in Incentive Contracts , 2000 .

[11]  B. Parcells.  The tough work of turning around a team. , 2000, Harvard business review.

[12]  E. Lazear,et al.  Peer Pressure and Partnerships , 1992, Journal of Political Economy.

[13]  Gary E. Bolton,et al.  ERC: A Theory of Equity, Reciprocity, and Competition , 2000 .

[14]  E. Weber,et al.  Reasons for Rank-Dependent Utility Evaluation , 1997 .

[15]  John Ferejohn,et al.  Rational Choice and Social Theory , 1994 .

[16]  Jon Elster,et al.  The Cement Of Society , 1991 .

[17]  Drew Fudenberg,et al.  The Folk Theorem in Repeated Games with Discounting or with Incomplete Information , 1986 .

[18]  Ed Nosal,et al.  Bargaining under Uncertainty and the Monotone Path Solutions , 1996 .

[19]  U. Fischbacher,et al.  Why Social Preferences Matter - the Impact of Non-Selfish Motives on Competition, Cooperation and Incentives , 2002 .

[20]  Todd R. Zenger,et al.  Why do employers only reward extreme performance? Examining the relationships among performance, pay, and turnover. , 1992 .

[21]  R. Schroeder,et al.  The impact of human resource management practices on operational performance: recognizing country and industry differences , 2003 .

[22]  J. Jaffray,et al.  Rational Behavior under Complete Ignorance , 1980 .

[23]  R. Handfield,et al.  THE IMPACT OF UNIONS ON OPERATIONS STRATEGY , 2000 .

[24]  M. Olson,et al.  The Logic of Collective Action , 1965 .

[25]  E. Fehr,et al.  Cooperation and Punishment in Public Goods Experiments , 1999, SSRN Electronic Journal.

[26]  Amnon Rapoport,et al.  Decision Making under Strict Uncertainty: An Experimental Test of Competitive Criteria , 1995 .

[27]  Daniel McFadden,et al.  Rationality for Economists , 1999 .

[28]  Mark Pagell,et al.  Multiple case studies of team effectiveness in manufacturing organizations , 2002 .

[29]  Pekka Kess,et al.  Team roles in business process re-engineering , 2002 .

[30]  Rhonda K. Reger,et al.  REFRAMING THE ORGANIZATION: WHY IMPLEMENTING TOTAL QUALITY IS EASIER SAID THAN DONE , 1994 .

[31]  Paul Oyer,et al.  Why Do Firms Use Incentives that Have No Incentive Effects? , 2000 .

[32]  T. Schelling.  Micromotives and Macrobehavior , 1978 .

[33]  Sheldon M. Ross,et al.  Stochastic Processes , 2018, Gauge Integral Structures for Stochastic Calculus and Quantum Electrodynamics.

[34]  J. Pinto,et al.  Antecedents and consequences of project team cross-functional cooperation , 1993 .

[35]  A. Tversky,et al.  Thinking through uncertainty: Nonconsequential reasoning and choice , 1992, Cognitive Psychology.

[36]  Armin Falk,et al.  A Theory of Reciprocity , 2001, Games Econ. Behav..

[37]  Charles F. Manski,et al.  Identification problems and decisions under ambiguity: Empirical analysis of treatment response and normative analysis of treatment choice , 2000 .

[38]  Hans-Werner Sinn,et al.  A Rehabilitation of the Principle of Insufficient Reason , 1980 .

[39]  Gerald Marschke,et al.  An Empirical Investigation of Gaming Responses to Explicit Performance Incentives , 2002, Journal of Labor Economics.

[40]  John W. Boudreau,et al.  The Effects of Low Inventory on the Development of Productivity Norms , 1999 .

[41]  H. Gintis,et al.  Social Capital and Community Governance , 2002 .

[42]  Amy L. Pablo,et al.  Reconceptualizing the Determinants of Risk Behavior , 1992 .

[43]  Shimon Y. Nof.  Next generation of production research:: Wisdom, collaboration, and society , 1999 .

[44]  Patricio Donoso,et al.  Semi-autonomous planning using linear programming in the Chilean General Treasury , 2002, Eur. J. Oper. Res..

[45]  Gerald T. Garvey,et al.  Incentives for Helping on the Job: Theory and Evidence , 1998, Journal of Labor Economics.

[46]  Rajiv D. Banker,et al.  Work-Team Implementation and Trajectories of Manufacturing Quality: A Longitudinal Field Study , 2000, Manuf. Serv. Oper. Manag..

[47]  R A Jarrow,et al.  Handbooks in Operations Research and Management Science Volume 9 Finance , 1997 .

[48]  M. Rabin.  Published by: American , 2022 .

[49]  Bengt Holmstrom,et al.  Moral Hazard in Teams , 1982 .

[50]  Fred Luthans,et al.  A Meta-Analysis of the Effects of Organizational Behavior Modification on Task Performance, 1975–95 , 1997 .

[51]  Todd R. Zenger,et al.  The Determinants of Incentive Intensity in Group-Based Rewards , 1996 .

[52]  Debraj Ray,et al.  Collective Action and the Group Size Paradox , 2001, American Political Science Review.

[53]  Danny Samson,et al.  Integrated manufacturing, employee and business performance: Australian and New Zealand evidence , 2002 .

[54]  A. Schotter,et al.  Productivity Under Group Incentives: An Experimental Study , 1994 .

[55]  William E. Hefley,et al.  The People Capability Maturity Model : guidelines for improving the workforce , 2002 .

[56]  Jon Gant,et al.  Social Capital and Organizational Change in High‐Involvement and Traditional Work Organizations , 2002 .

[57]  H. White.  A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity , 1980 .

[58]  Henry L. Tosi,et al.  Examining the Unique Effects of Multiple Motivational Sources on Task Performance , 2003 .

[59]  Dennis Chong.  Collective action and the civil rights movement , 1991 .