Working Papers in Economics,
University of Bergen, Department of Economics

Abstract: This paper uses data from a firm with team production to investigate the association between workers’ productivity, risk aversion and preferred bonus scheme (team or individual). The economic model makes a strong prediction in this case. Workers who produce more than the team average should vote for an individual bonus. The only concern that may moderate this preference is risk aversion. Workers lagging behind the team average should vote for a team bonus. The economic model predicts the case at hand fairly well: A high relative work place productivity is strongly associated with a preference for individual bonuses, and risk aversion is associated with a preference for a team bonus. There is, however, one noticeable exception; a substantial fraction of low performers prefer an individual bonus. I argue there are two types of other regarding concerns that can explain why these workers prefer a payment system that reduces their income; distributional fairness and social emotions.

Keywords: Payment systems; risk aversion; social appraisal; fairness.

JEL-codes: D63; J33

16 pages, November 15, 2011

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