Cooperation, Free-riding, and the Signaling Value of Incentives: an Experiment in a Company
Abstract: Economists and management scholars have argued that the scope of incentives to increase cooperation in organizations is limited as their use signals the prevalence of free-riding among employees. This paper tests this hypothesis experimentally, using a sample of managers and employees (N = 449) from a large software company. In the experiment, I exogenously vary whether managers are informed about prevailing cooperation levels among employees before they can set incentives to promote cooperation. Comparing informed versus uninformed incentive choices, the data reveals strong positive effects of incentives that are unaffected by the hypothesized signaling effect. The absence of such effect seems related to the perception of managers’ intentions, a mitigating factor that has not been explored in the literature so far.
