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Dynamic incentive effects of assignment mechanisms: experimental evidence

Dynamic incentive effects of assignment mechanisms: experimental evidence
Dynamic incentive effects of assignment mechanisms: experimental evidence
Optimal assignment and matching mechanisms have been the focus of exhaustive analysis. We focus on their dynamic effects, which have received less attention, especially in the empirical literature: anticipating that assignment is based on prior performance may affect prior performance. We test this hypothesis in a lab experiment. Participants first perform a task individually without monetary incentives; in a second stage, they are paired with another participant according to a pre-announced assignment policy. The assignment is based on first-stage performance and compensation is determined by average performance. Our results are largely consistent with theory: pairing the worst performing individuals with the best yields 20% lower first stage effort than random matching and does not induce truthful revelation of types, which undoes any policy that aims to reallocate types based on performance. Perhaps surprisingly, however, pairing the best with the best yields only 5% higher first stage effort than random matching and the difference is not statistically significant.
1058-6407
Gall, Thomas
8df67f3d-fe3c-4a3f-8ce7-e2090557fcd4
Hu, Xiaocheng
92aa0e49-c45f-4788-8efd-ba48baa97db2
Vlassopoulos, Michael
2d557227-958c-4855-92a8-b74b398f95c7
Gall, Thomas
8df67f3d-fe3c-4a3f-8ce7-e2090557fcd4
Hu, Xiaocheng
92aa0e49-c45f-4788-8efd-ba48baa97db2
Vlassopoulos, Michael
2d557227-958c-4855-92a8-b74b398f95c7

Gall, Thomas, Hu, Xiaocheng and Vlassopoulos, Michael (2019) Dynamic incentive effects of assignment mechanisms: experimental evidence. Journal of Economic and Management Strategy. (doi:10.1111/jems.12315).

Record type: Article

Abstract

Optimal assignment and matching mechanisms have been the focus of exhaustive analysis. We focus on their dynamic effects, which have received less attention, especially in the empirical literature: anticipating that assignment is based on prior performance may affect prior performance. We test this hypothesis in a lab experiment. Participants first perform a task individually without monetary incentives; in a second stage, they are paired with another participant according to a pre-announced assignment policy. The assignment is based on first-stage performance and compensation is determined by average performance. Our results are largely consistent with theory: pairing the worst performing individuals with the best yields 20% lower first stage effort than random matching and does not induce truthful revelation of types, which undoes any policy that aims to reallocate types based on performance. Perhaps surprisingly, however, pairing the best with the best yields only 5% higher first stage effort than random matching and the difference is not statistically significant.

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Accepted/In Press date: 5 March 2019
e-pub ahead of print date: 30 March 2019

Identifiers

Local EPrints ID: 429761
URI: https://eprints.soton.ac.uk/id/eprint/429761
ISSN: 1058-6407
PURE UUID: 5bb67fba-020c-47ba-8506-aee2dc03a840
ORCID for Thomas Gall: ORCID iD orcid.org/0000-0003-2257-1405
ORCID for Michael Vlassopoulos: ORCID iD orcid.org/0000-0003-3683-1466

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Date deposited: 05 Apr 2019 16:30
Last modified: 30 Oct 2019 01:32

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Author: Thomas Gall ORCID iD
Author: Xiaocheng Hu

University divisions

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