Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Alexander W. Cappelen
Leadership and incentives.
(), Bjørn-Atle Reme
(), Erik Ø. Sørensen
() and Bertil Tungodden
Abstract: We study how leader compensation affects public goods
provision. We report from a lab experiment with four treatments, where the
base treatment was a standard public goods game with simultaneous
contribution decisions, while the three other treatments allowed
participants to volunteer to be the leader in their group and make their
contribution before the others. In the three leader treatments, we
manipulate the level of compensation given to the leader. Our main finding
is that a moderate compensation to the leader is highly beneficial, it
increases the average contribution by 63% relative to a situation where the
leader is not compensated and by more than 90% relative to a situation
without a leader. A further increase in the leader compensation, however,
is detrimental to public goods provision; it attracts less morally
motivated leaders and creates a social crowding-out effect that makes it
harder to lead by example. Finally, we report from a survey showing that
the social crowding-out effect is also present in the population at large.
We argue that the main findings of the paper are important in many real
life settings where we would like to use economic incentives to encourage
people to lead by example.
Keywords: Lab experiment; leadership; compensation.; (follow links to similar papers)
JEL-Codes: C91; C92; D63; (follow links to similar papers)
21 pages, February 11, 2014
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