Abstract

The hypothesis in this paper tests the impact of positive and negative incentives on worker productivity. My hypothesis is that both incentive structures will have positive impacts on the productivity of the subjects in an experiment. However, I believe that negative incentives will be more effective in increasing productivity because of the ideas of loss aversion. In this paper I develop a model to explain the effort function of a worker with added variables to control for different types of frames for different people. The theoretical framework in this paper builds upon the Principal-Agent problem and several of its solutions including Efficiency Wage Theory and Gift Exchange Theory. Also I incorporate several ideas from Prospect Theory in order to explain the loss aversion philosophy. An experimental methodology is utilized in this paper in order to better control for certain variables and explain specific data from my results. This paper finds that threats and rewards negatively impact worker production which disagrees with most incentive theory especially the papers discussed in this paper

Advisor

Mellizo, Philip

Department

Economics

Disciplines

Economics

Publication Date

2012

Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis

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© Copyright 2012 Dan Terhune