Publications

Purpose – The purpose of this paper is to consider the influence of individual risk preferences on the effectiveness of incentive pay schemes, by examining the link between individual effort and risk aversion in situations where outcome uncertainty multiplies with effort. Such “multiplicative noise” situations are common, occurring whenever payment is awarded per success rather than per attempt.

Design/methodology/approach – The paper develops a theoretical model which predicts a negative risk aversion-effort link under multiplicative noise without a performance target (PT), and a weaker negative link once the target is introduced. This model is then taken to the data from a lab experiment where participants were randomly assigned to a control group, which received fixed pay, and a treatment group, which received a piece rate awarded with a certain probability, with and without a PT. Risk aversion is measured with a menu of lottery choices offered at the end of the experiment.

Findings – Compared to their peers in the control group, the more risk-averse participants in the treatment group put in progressively less effort in the absence of a PT. The introduction of a PT substantially weakens this negative risk aversion-effort link, so that there are no more significant differences in performance between the more and the less risk averse.

Research limitations/implications – The paper’s findings speak to the empirical puzzles of incentive pay schemes backfiring and of the proliferation of PTs. The negative risk aversion-effort link may be one reason behind the failure of incentive schemes to deliver improved performance, whereas the weakening of this link may be one justification for the existence of PTs.

Practical implications – In the multiplicative noise environments, managers should take their workers’ risk preferences into account when designing incentive pay schemes. A PT may be a useful motivational tool for the risk-averse workers who are more likely to under-perform.

Originality/value – The multiplicative noise environment has been largely overlooked by the existing literature, yet it is common in practice. An example is the work of a sales agent who receives a bonus per sales which succeeds with a certain probability after each customer contact. This paper is one of the first to model, and test experimentally, worker performance in this environment.

Kleine und mittelständische Unternehmen in Industrie und Handwerk wollen trotz des zunehmenden Fachkräftemangels flexibel und wettbewerbsfähig bleiben. Zur Bewältigung dieser Anforderung mit der bestehenden Belegschaft fehlt es den Unternehmen zumeist an praktikablen und finanzierbaren Personalentwicklungsmaßnahmen. Daher wurde im Pilotprojekt „Entwicklungsbegleitung” ein individualisiertes Personalentwicklungskonzept ausgearbeitet und in einem produzierenden Unternehmen mit Mitarbeitenden erprobt. Das Konzept zielt auf Mitarbeitende in der Produktion ab, Ausgangspunkt für Entwicklungsprozesse ist dabei stets die Person. Die Entwicklungsbegleitung umfasst vier Einzelgespräche innerhalb eines acht- bis zehnwöchigen Prozesses. Sie findet in der Produktion statt und wird passend zum Schichtbetrieb durchgeführt. Zwei Fallbeispiele zeigen exemplarisch, wie die Entwicklungsbegleitung bei den Mitarbeitenden eine Steigerung ihrer Lerngestaltungskompetenz bewirkt, die Produktionsleitung stellte eine nachhaltige Aktivierung für den kontinuierlichen Verbesserungsprozess fest. Das Pilotprojekt zeigt, dass sich der Ansatz in der Praxis bewährt und insbesondere die Durchführung durch den Entwicklungsbegleiter als eigenständige Funktion zu ihrem Erfolg beiträgt.

We conducted a field experiment in a controlled work environment to investigate the effect of motivational talk and its interaction with monetary incentives. We find that motivational talk improves performance only when accompanied by performance pay. Moreover, performance pay reduces performance unless it is accompanied by motivational talk. These effects also carry over to the quality of work. Performance pay alone leads to more mistakes. Adding motivational talk makes the difference. In treatments with performance pay, motivational talk increases output by about 20 percent and reduces the ratio of mistakes by more than 40 percent.

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dc.contributor.author: Friebel, Guido; Heinz, Matthias

Despite the important role that teachers’ professional competencies play, domain-specific models of competence as well as established instruments to measure such competencies are lacking (e.g., Blömeke, Zlatkin-Troitschanskaia, Kuhn, & Fege, 2013). For this reason, a domain-specific model of competence and an instrument to measure prospective business and economics teachers’ professional competence in the domain of accounting was developed. This article focuses on the measurement of professional knowledge, which is a key facet of teachers’ professional competence. A corresponding test instrument is introduced and its measurement quality is reported. The test instrument used at 24 German universities (N = 1.158) comprises 49 items, distributed among different booklets following a multi-matrix design. All items have well functioning parameter values. In accordance with our hypothesis, a two-dimensional model fits the data best. The reliabilities of .64 (content knowledge) and .64 (pedagogical content knowledge) are satisfying. Thus, the developed instrument allows to gain a detailed understanding of prospective teachers’ professional knowledge in accounting.

Private military and security companies (PMSCs) have been gaining increasing media and scholarly attention particularly due to their indispensable role in the wars in Afghanistan 2001 and Iraq 2003. Nevertheless, theoretical insights into the agency problems inherent when hiring PMSCs and how to optimally incentivize them are scarce. We study the complex relationship between intervening state, host state, and PMSC, taking into account the diverging interests of all involved parties as well as potential agency problems. We develop a theoretical model to characterize a state's optimal choice whether to perform a task associated with an intervening mission itself, or hire a PMSC and optimally design the contract. We find that it might be optimal to hire PMSCs even if they are expected to do a worse job than the intervening state would do itself. Furthermore, the government's reputation in rewarding PMSCs for a good performance is crucial and might render it optimal to only deal with a limited number of PMSCs — who are not necessarily always the most efficient providers.

Existing estimates of the labor-market returns to human capital give a distorted picture of the role of skills across different economies. International comparisons of earnings analyses rely almost exclusively on school attainment measures of human capital, and evidence incorporating direct measures of cognitive skills is mostly restricted to early-career workers in the United States. Analysis of the new PIAAC survey of adult skills over the full lifecycle in 23 countries shows that the focus on early-career earnings leads to underestimating the lifetime returns to skills by about one quarter. On average, a one-standard-deviation increase in numeracy skills is associated with an 18 percent wage increase among prime-age workers. But this masks considerable heterogeneity across countries. Eight countries, including all Nordic countries, have returns between 12 and 15 percent, while six are above 21 percent with the largest return being 28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures, additional controls, and various subgroups. Instrumental-variable models that use skill variation stemming from school attainment, parental education, or compulsory-schooling laws provide even higher estimates. Intriguingly, returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.

This paper addresses the issue of the impact of changes in world prices upon the welfare of households in small open economies. Making use of a model of a small open economy with one monopolistically competitive industry, we derive conditions under which an exogenous increase in the world price of the monopolistically competitive good, arising from a shift in demand, is conflict generating between the owners of unskilled and skilled labour in the short run but Pareto improving in the long run. Output adjustments at the intensive margin make for conflict generation, but the converse holds for adjustments at the extensive margin in the long run. The analysis highlights the importance of the induced increase in the number of domestic varieties and of the skilled labour intensity in the production of goods relative to its intensity in the setting up of firms.

We estimate the dynamic daily dependence between assets by applying the Semiparametric Copula-Based Multivariate Dynamic (SCOMDY) model on intraday data. Using tick data of three stock returns of the period before and during the credit crisis, we find that our dependence estimator better captures the steep increase in dependence during the onset of the crisis as compared to other commonly used time-varying copula methods. Like other high-frequency estimators, we find that the dependence estimator exhibits long memory and forecast it using a HAR model. We show that for out-of-sample forecasts, our dependence estimator performs better than the constant estimator and other commonly used time-varying copula dependence estimators.

The German Dual System has attracted some considerable attention in recent years, with a number of countries, above all in Southern Europe, trying to introduce similar concepts of structured apprenticeships leading to initial vocational qualifications. Quite manifestly, there is expectation among politicians in particular that such a system might help cope with integration problems of school leavers into the vocational education and training sector and support combating youth unemployment. Focusing on the two ‘learning venues’, however, seems short-sighted as the German vocational education and training system has more working principles than just the dual learning setting. In contrast to the British approach, the German system trusts in a clear orientation of workplace learning along the lines of an ‘occupation’ (Beruf). Besides, the German vocational education and training system as a whole is more complex than it seems, with a still weighty ‘transition system’ and full-time courses in vocational education and training alongside apprenticeships. My argument is that the aspect of ‘good practice’ has to be relativised both against the background of these structural issues and in the face of recent academic drift in the German education system.

This paper examines the impact of social heterogeneity on in-kind redistribution. We contribute to the previous literature in two ways: we consider i) the provision of several public goods and ii) agents different not only in income, but also in their preferences over the various goods provided by the public sector. In this setting, both the distribution and size of goods provision depend on the heterogeneity of preferences. Our main result is that preference heterogeneity tends to decrease in-kind redistribution, while income inequality tends to increase it. An empirical investigation based on United States Census Bureau data confirms these theoretical findings.