Leadership and Incentives

Abstract

We study whether compensating people who volunteer to be leaders in a public goods game creates a social crowding-out effect of moral motivation among the others in the group. We report from an experiment with four treatments, where the base treatment is a standard public goods game with simultaneous contribution decisions, while the three other treatments allowed participants to volunteer to be an "early contributor" in their group. 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 almost 80%. A high compensation, however, is detrimental to public good provision. We show that paying a moderate compensation to the leaders strikes the right balance between the need for recruiting leaders and avoiding a large social crowding-out effect. 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. * We have received extremely valuable comments and suggestions from Thomas Dohmen, Tore

Leading by Example in a Public Goods Experiment with Benefit Heterogeneity

“…In contrast, our 3 The experiment in Glöckner et al (2011) shows that followers respond to leaders more strongly when contributing is not a dominant strategy for leaders. Similar evidence is provided by Cappelen et al (2016) and van der Heijden et al (2013), who suggest that leaders' influence on followers is weak when leaders get a high compensation for leading or have no cost of setting good examples. endogenous treatment is based on volunteering for leadership.…”

“…Our treatment with self-selected leaders also adds to the literature on endogenous leadership (e.g., Arbak & Villeval, 2013;Bruttel & Fischbacher, 2013;Cappelen et al, 2016;Dannenberg, 2015;Haigner & Wakolbinger, 2010;Préget et al, 2016;Rivas & Sutter, 2011).…”

Discretionary mechanisms and cooperation in hierarchies: An experimental study

“…limiting their autonomy) had an adverse effect of the latter´s proclivity to cooperate. Cappelen et al (2016) and Aquino et al (1992) respectively observed that increasing the compensation given to the leader or allowing the leader to benefit without contributing attenuated cooperation by contravening distributive fairness and equality norms.…”

“…Balliet et al, 2011;Drouvelis et al, 2015). Preliminary experimental studies suggest that endowing delegated managers with such discretionary rights would appear to provoke resentment, incite disobedience, and so forth (Nikiforakis et al, 2014;Cappelen et al, 2016), which not only undermines worker cooperative propensities, but ultimately sabotages the interests of the organization itself, and thereby, its residual claimant shareholders (Einarsen et al, 2007). This raises the question of how to design discretionary mechanisms in hierarchical organizations in order to circumscribe the scope of managerial self-seeking behavior vis-à-vis their subordinates.…”

The Team Allocator Game: Allocation Power in Public Goods Games

“…Psychologists have been overall more optimistic than economists in the effectiveness of rewards in sustaining cooperation, with Rand et al (2009) being a notable example. For a meta-analysis on the effectiveness of punishment and rewards including studies both from the literatures in economics and psychology, see Balliet et al (2011). 2013; Cappelen et al 2016;Preget et al 2016;Gächter and Renner, 2018). However, as these studies focus on leading by example, our study is only notionally related.…”