Group-Based Incentives and Individual Performance: A Study of the Effort Response

Group-based incentives are attractive in contexts where production is interdependent. Prior work shows such incentives increase group performance despite freeriding concerns, yet little is known about the effort response of individuals. Using individual-level data, the authors assess the introduction of group-based performance pay using difference-in-difference estimation. Overall, performance increased by 19%. Nearly all workers contributed to this effect. Further, two-thirds of this effect stems from increased efficiency (more output per unit of time) and one-third from higher attendance. Both incentive and selection effects are present. By leveraging individual-level data, the authors pose new questions and evidence to the group-based incentives literature.