The effects of performance separability and contract type on agent effort

We report the results of an experiment on the influence of performance separability and contract type on the effort levels of subjects working in an environment characterized by team effects. We demonstrate that the principal can achieve improvements in productivity through the choice of incentive scheme and/or by increasing the degree of performance separability through monitoring activities. We consider competitive, individual, and cooperative incentive schemes and two levels of performance separability. Under both the competitive and individual schemes, effort levels increase as the degree of performance separability increases. Under the cooperative scheme, effort levels are not affected by changes in the degree of performance separability.