FrançaisEnglish

Érudit | Dépôt de documents >
CIRPÉE - Centre interuniversitaire sur le risque, les politiques économiques et l'emploi >
Cahiers de recherche du CIRPÉE >

Please use this identifier to cite or link to this item:

https://depot.erudit.org/id/001038dd

Title: The Response to Incentives and Contractual Efficiency: Evidence from a Field Experiment
Authors: Paarsch, Harry J.
Shearer, Bruce S.
Keywords: Incentives
Contractual Efficiency
Field Experiments
Issue Date: 2007-01
Series/Report no.: Cahiers du CIRPÉE;07-01
Abstract: We investigate the efficiency of piece-rate contracts using data from a field experiment, conducted within a tree-planting firm. During the experiment, the piece rate paid to planters was exogenously increased. Regression methods yield an estimate of the elasticity of output with respect to changes in the piece rate of 0.39. Regression methods are limited in their ability to predict the performance of alternative contracts. Therefore, we apply structural methods to interpret the experimental data. Our structural estimate of the elasticity is 0.37, very close to the regression estimate. Importantly, our structural model is identified without imposing profit maximization. This allows us to evaluate the optimality of the observed contract. We simply measure the profit distance between the observed contract and the profit-maximizing contract, evaluated at the structural parameter estimates. We estimate this distance to be negligible, suggesting that the observed contract closely approximates the expected-profit maximizing contract under asymmetric information. Under complete information, expected profits would increase by approximately fourteen percent, holding expected utility constant.
URI: http://132.203.59.36/CIRPEE/cahierscirpee/2007/files/CIRPEE07-01.pdf
https://depot.erudit.org/id/001038dd
Appears in Collections:Cahiers de recherche du CIRPÉE

Files in This Item:

CIRPEE07-01.pdf, (Adobe PDF ; 572,86 kB)

Items in the Repository are protected by copyright, with all rights reserved, unless otherwise indicated.

 

About Érudit | Subscriptions | RSS | Terms of Use | Contact us |

Consortium Érudit ©  2014