Workplace Incentives and Organizational Learning
Abstract: This paper studies organizational learning when incentives change. We first illustrate how imperfect information over the true shape of the production function affects worker’s effort choice over time as information is disclosed and processed. We then show that changes in the compensation schedule can trigger such learning process. We take this hypothesis to the data using personnel records from a Peruvian egg production plant. Exploiting a sudden change in the worker salary structure, we find evidence that workers learn from each other over the shape of the production function, and change their effort accordingly. This adjustment process is costly for the firm. Our study shows that lack of information over the global shape of the production function increases the cost for firms associated with changing the shape of incentives at the workplace.
