Quarterly Personnel Update-- 2022_12
Peter Kuhn
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The Principal-Agent Problem
5.5: Multi-task Principal-Agent Interactions
Knutsson, Daniel and Björn Tyrefors “The Quality and Efficiency of Public and Private Firms: Evidence from Ambulance Services” Quarterly Journal of Economics, Volume 137, Issue 4, November 2022, Pages 2213–2262.
Privately-owned ambulance services in Stockholm County, Sweden are financially incentivized to reduce costs and response times. Publicly-owned services face much lower financial incentives. The authors use random assignment of patients to public versus private ambulances to show that private ambulances reduce costs and perform better on contracted measures such as response time, but perform worse on noncontracted measures such as mortality. In fact, a patient has a 1.4% higher risk of death within three years if a private ambulance is dispatched. In part, this appears to be because private firms cut costs at the expense of ambulance staff quality.
6. Optimal Monitoring
Cai, Jin and Shing-Yi Wang. Improving Management Through Worker Evaluations: Evidence from Auto Manufacturing The Quarterly Journal of Economics, Volume 137, Issue 4, November 2022, Pages 2459–2497.
Using a randomized experiment with an automobile manufacturing firm in China, the authors measure the effects of letting workers evaluate their managers on worker and firm outcomes. In the treatment teams, workers evaluate their managers monthly. This feedback leads to significant reductions in worker turnover and increases in team-level productivity. In addition, workers report higher levels of happiness and well-being.
Evidence on Employee Motivation
9.1 Small Stakes
Iizuka, Toshiaki, and Hitoshi Shigeoka. 2022. "Is Zero a Special Price? Evidence from Child Health Care." American Economic Journal: Applied Economics, 14 (4): 381-410.
Do consumers react differently to zero prices? The authors test the presence of a zero-price effect in child health care and find that a zero price is special because it boosts demand discontinuously, relative to a small co-payment as small as US$2 per visit. Therefore, zero and non-zero prices should be strategically chosen to achieve specific goals.
9.2 Intrinsic, Symbolic and Image Motivation
Hussam, Reshmaan, Erin M. Kelley, Gregory Lane and Fatima Zahra 2022 The Psychosocial Value of Employment: Evidence from a Refugee Camp American Economic Review, 112(11): 3694–3724
Employment may be important to well-being for reasons beyond its role as an income source. This paper presents a causal estimate of the psychosocial value of employment in refugee camps in Bangladesh. 745 individuals are randomly assigned to a control treatment, receiving weekly cash payments, and jobs paying the same amount of money. The authors find that employment raises psychosocial well-being substantially more than cash alone, and 66 percent of the employed are willing to forgo cash payments to continue working temporarily for free. Despite being very poor, these refugees both experience and recognize a nonmonetary, intrinsic value of employment.
9.2.a Awards
Imas, Alex and Kristóf Madarász 2022 Superiority-Seeking and the Preference for Exclusion NBER working paper no. 30334
The authors propose that a person’s desire to consume an object or possess an attribute increases in how much others want but cannot have it. They call this motive superiority-seeking, and study its implications for large variety of behaviors. In the context of personnel economics, superiority-seeking could explain why people value non-monetary awards for good performance simply because the awards are scarce.
9.3-9.4 Large Stakes
Fehr, Dietmar, Günther Fink, and B. Kelsey Jack 2022 Poor and Rational: Decision-Making under Scarcity Journal of Political Economy, volume 130, number 11, November 2022
Does the stress of being poor lead people to make less rational economic decisions? The authors gave farmers in Zambia the opportunity to exchange randomly assigned household items for alternative items of similar value. Analyzing a total of 5,842 trading decisions and leveraging multiple sources of variation in financial constraints, they show that the farmers made fewer irrational decisions when they were more financially constrained.
9.5-9.6: Loss Aversion and Reference Points
Czibor, Eszter, Danny Hsu, David Jimenez-Gomez, Susanne Neckermann, and Burcu Subasi Loss-Framed Incentives and Employee (Mis-)Behavior Management Science, Vol. 68, No. 10: 7518-7537.
How do loss-framed incentives affect behavior in a multitasking environment, where participants have more than one way of recovering (expected) losses? Using a laboratory experiment, the authors find that framing incentives as a penalty rather than as a reward does not significantly improve task performance, but it makes subjects less honest (by raising theft).
Steffen Andersen, Cristian Badarinza, Lu Liu, Julie Marx and Tarun Ramadorai 2022 Reference Dependence in the Housing Market American Economic Review , 112(10): 3398–3440
The authors use a structural model to measure the amount of reference dependence and loss aversion in the Danish housing market. They estimate that households derive substantial utility from gains over the original nominal house purchase price; losses affect households roughly 2.5 times more than gains.
9.7 Present Bias and Procrastination
Altmann, Steffen Christian Traxler, and Philipp Weinschenk 2021 Deadlines and Memory Limitations Management Science, Vol. 68, No. 9: 6733-6750.
The authors randomly vary deadlines and rewards for arranging checkup appointments at a dental office. They find that imposing deadlines induces patients to act earlier and more often. This happens even when deadlines are not tied to explicit rewards, suggesting that limitations in memory and attention affect the patients’ behavior. Their results show that deadlines can be a powerful management tool to increase the cost effectiveness of performance-contingent rewards
Heffetz, Ori, Ted O'Donoghue and Henry S. Schneider 2022 Reminders Work, but for Whom? Evidence from New York City Parking Ticket Recipients American Economic Journal: Economic Policy 2022, 14(4): 343–370
The authors study the effectiveness of reminder letters to New York City parking ticket recipients. While the letters ‘worked’, they mostly worked for recipients who were most likely to pay anyway. Those who were initially least likely to pay –who disproportionately come from disadvantaged groups-- reacted the least to letters. This group did, however, react strongly to traditional, incentive-based interventions. Thus, light-touch interventions like reminders can be effective may not work for all agents.
10.7 Fairness Among Workers
Peer Effects:
Guryan, Jonathan, Kory Kroft and Matthew J. Notowidigdo. 2009 “Peer Effects in the Workplace: Evidence from Random Groupings in Professional Golf Tournaments” American Economic Journal: Applied Economics, 1(4), 34-68.
This paper uses random assignment in professional golf tournaments to test for peer effects in the workplace. In contrast to Jennifer Hunt’s study of the effects of Tiger Woods, they authors found no evidence that playing partners' ability affects performance.
Kiessling, Lukas, Jonas Radbruch, and Sebastian Schaube (2022) Self-Selection of Peers and Performance. Management Science 68(11):8184-8201.
This paper studies how the presence of peers and different peer assignment rules—self-selection versus random assignment—affect individual performance. Using a framed field experiment, we find that the presence of a randomly assigned peer improves performance by 28% of a standard deviation (SD), whereas self-selecting peers induces an additional 15%–18% SD improvement in performance.
11. Income Effects
Fehr, Dietmar, Günther Fink, and B. Kelsey Jack 2022 Poor and Rational: Decision-Making under Scarcity Journal of Political Economy, volume 130, number 11, November 2022
The authors gave farmers in Zambia the opportunity to exchange randomly assigned household items for alternative items of similar value. Analyzing a total of 5,842 trading decisions and leveraging multiple sources of variation in financial constraints, they show that the farmers made fewer irrational decisions when they were more financially constrained. Thus, in addition to consuming more leisure and other goods they value, people may respond to additional, ‘free’ income by not having to think as hard about the economic decisions they make.
Selection
15: Choosing from the Pool: Testing, Discretion, and Self-Selection
Cullen, Zoë, Will Dobbie, and Mitchell Hoffman 2023 Increasing the Demand for Workers with a Criminal Record Quarterly Journal of Economics, Volume 138, Issue 1, February 2023, Pages 103–150.
Working with a staffing platform, the authors asked hiring managers to make a series of hypothetical hiring decisions that affected whether workers with a criminal record could accept their jobs in the future. They found that 39% of businesses were willing to work with individuals with a criminal record at baseline, which rises to over 50% when businesses are offered crime and safety insurance, a single performance review, or a limited background check covering just the past year. Wage subsidies can achieve similar increases but at a substantially higher cost. Based on the authors’ findings, the staffing platform relaxed the criminal background check requirement and offered crime and safety insurance to interested businesses.
16.1 Detecting Discrimination
Bircan, Cagatay, Guido Friebel and Tristan Stahl. 2022 “Knowledge Teams, Careers, and Gender” unpublished paper, University College London
The authors study gender promotion gaps in an international financial institution. Regardless of whether they have children, women have significantly slower careers. A crucial mechanism for this difference is early assignments to jobs that are visible to the upper echelons of the organization, which favor men.
16.3 Effects of Discrimination
Olle Folke, Johanna Rickne 2022 Sexual Harassment and Gender Inequality in the Labor Market Quarterly Journal of Economics, Volume 137, Issue 4, November 2022, Pages 2163–2212.
The authors use nationally representative administrative data to show that the amount of sexual harassment varies strongly and systematically across workplaces: Women self-report more harassment from colleagues and managers in male-dominated workplaces where wages are relatively high, and men self-report more harassment in female-dominated workplaces where wages are low. Using a survey experiment, the authors argue that harassment deters women and men from applying for jobs in workplaces where they are the gender minority. Using data on workplace transitions, the authors also show that sexual harassment leads workplace gender minorities to leave their workplaces for new jobs. Together, these mechanisms work to perpetuate gender segregation in employment and the sexual harassment that tends to accompany it.
17: Setting Pay: Monopsony Models
Cullen, Zoe, Shengwu Li, and Ricardo Perez-Truglia 2022 “What’s My Employee Worth? The Effects of Salary Benchmarking” NBER working paper no. 30570
Most medium and large U.S. firms use data supplied by consultants about other firms’ wages to set their salaries, a practice that is known as salary benchmarking. This paper conducts one of the first empirical studies of the effects of salary benchmarking. Using administrative data from one of the leading providers of salary benchmarks, the authors show that benchmarking has a significant effect on pay setting that is consistent with their theoretical predictions.
18: Setting Pay: Efficiency Wages
Deferred compensation:
Caplin, Andrew, Minjoon Lee, Søren Leth-Petersen, Johan Saeverud & Matthew D. Shapiro 2022 How Worker Productivity and Wages Grow with Tenure and Experience: The Firm Perspective NBER working paper no 30342.
This paper uses direct measures of worker productivity to study the effects of a worker’s within-firm versus total experience on their productivity growth. They find that on-the-job productivity growth exceeds wage growth, which is inconsistent with Lazear’s ‘deferred compensation’ model. While the patterns vary across types of work, they also find overall previous experience is far less than perfect substitute for experience in the current job.
19: Training
Caplin, Andrew, Minjoon Lee, Søren Leth-Petersen, Johan Saeverud & Matthew D. Shapiro 2022 How Worker Productivity and Wages Grow with Tenure and Experience: The Firm Perspective NBER working paper no 30342.
This paper uses direct measures of worker productivity to study the effects of a worker’s within-firm versus total experience on their productivity growth. They find that on-the-job productivity growth exceeds wage growth. Consistent with Becker’s model of firm-specific human capital, this suggests that firms and workers share the returns to training. While the patterns vary across types of work, they also find overall previous experience is far less than perfect substitute for experience in the current job.
Tournaments
20.7: Extensions: Many Players, Prizes and Stages
Fu, Qiang and Zenan Wu 2022 Disclosure and Favoritism in Sequential Elimination Contests American Economic Journal: Microeconomics 2022, 14(4): 78–121.
In a two-stage contest in which only a subset of contestants enters the finale, the authors explore the optimal policy for disclosing contestants' interim status after the preliminary round. They find that concealment elicits more total effort, while disclosure maximizes the effort of the expected winner.
22.4: Ability Differences in Multistage Contests and Promotion Ladders
Madsen, Eric, Basil Williams, and Andrzej Skrzypacz. 2022 "Incentive Design for Talent Discovery" unpublished paper, New York University.
The authors show that talent discovery within organizations distorts employee task choices when promotions which are awarded based on perceived talent. Given this challenge, the authors study the optimal combination of bonuses and promotion policies.
23.2: Gender, Confidence and Competitiveness
Huffman, David, Collin Raymond and Julia Shvets 2022 Persistent Overconfidence and Biased Memory: Evidence from Managers Persistent Overconfidence and Biased Memory: Evidence from Managers American Economic Review 112(10): 3141–3175
A long-standing puzzle is how overconfidence can persist in settings characterized by repeated feedback. This paper studies managers who participate repeatedly in a high-powered tournament incentive system, learning relative performance each time. Using reduced form and structural methods the authors find that (i) managers make overconfident predictions about future performance; (ii) managers have overly positive memories of past performance; (iii) these two phenomena are linked at an individual level. These results are consistent with models of motivated beliefs in which individuals are motivated to distort memories of feedback and preserve unrealistic expectations.
Teams
Workplace Climate
Alan, Sule, Gozde Corekcioglu and Matthias Sutter 2022 Improving Workplace Climate in Large Corporations: A Clustered Randomized Intervention Quarterly Journal of Economics, forthcoming.
The authors use a field experiment on 3,000 headquarters employees of 20 large corporations in Turkey to evaluate the impact of a training program that encourages prosocial behavior and the use of professional language in the workplace, with a focus on leaders’ behavior and leader-subordinate interactions. They find that the program reduced leaders’ separation rates. Further, employees in treated corporations were less inclined to engage in toxic competition, exhibited higher reciprocity toward each other, reported higher workplace satisfaction.
26.3. Do Managers Matter? Evidence on Leadership
Antonakis, John, Giovanna d’Adda, Roberto A. Weber, and Christian Zehnder 2022 “Just Words? Just Speeches?” On the Economic Value of Charismatic Leadership Management Science, Vol. 68, No. 9: 6355-6381.
Sociologists and psychologists argue that charisma – the ability to persuade and motivate-- . plays an important role, over and above the design of optimal economic incentives. Little causals evidence of the effects of charisma exists however. The authors conduct field and laboratory experiments that measure the effects of the style of a leader’s motivational speech on followers’ propensity to undertake personally costly but socially beneficial actions. In the field experiment, workers who were given a charismatic speech increased their output by about 17% relative to workers who listen to a standard speech. In a similar lab experiment on public goods provision, a charismatic speech increased public good contributions by up to 19%.
Roberts, John, and
Kathryn L. Shaw. 2022 Managers
and the Management of Organizations NBER
working paper no. 30730.
The authors critically review the literature in Organizational and Personnel Economics concerning the role of managers and management practices. Their focus is on the middle managers who populate the hierarchies between top executives and front-line employees. They are especially concerned with research that brings together theoretical modeling and empirical investigation.
Thanks for your attention!
Note: The article descriptions in these updates are not copies of the authors’ abstracts. While they may use text from those abstracts (and/or the article), they are my own summaries that (a) endeavor to be shorter than most abstracts, and (b) attempt to place the article in the broader context of personnel economics as a field. I hope that you will find them helpful.