Shirking and "choking" under incentive-based pressure: A behavioral economic theory of performance production

Research output: Contribution to journalArticle

10 Scopus citations

Abstract

Significant empirical evidence exists within psychology and economics that greater incentives under pressure can lead to lower performance outcomes. However, standard economic theory does not account for this possibility. Efficiency wage models, for example, conclude a positive relationship between wage incentives and productivity. While efficiency wage models are shown to describe productivity behavior in numerous settings, said models do not describe labor markets featuring (counterproductive) performance pressure. We put forth a theoretical model of performance production in which performance incentives induce productive effects and counterproductive effects. The model treats explicit monitoring and distraction as distinct, counterproductive processes within a cohesive theory of performance production. In settings featuring performance pressure, we find that higher levels of performance-contingent compensation may decrease not only labor output (i.e., likelihood of task success) but also labor input (i.e., effort) if counterproductive processes decrease the marginal effectiveness of effort sufficiently. The latter finding challenges a common view that performance decrements under pressure occur despite greater effort levels.

Original languageEnglish (US)
Pages (from-to)363-366
Number of pages4
JournalEconomics Letters
Volume116
Issue number3
DOIs
StatePublished - Sep 1 2012
Externally publishedYes

Keywords

  • Choking under pressure
  • Performance incentives
  • Shirking under pressure

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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