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Leadership and incentives

Cappelen, Alexander W.; Reme, Bjørn-Atle; Sørensen, Erik Ø.; Tungodden, Bertil
Working paper
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URI
http://hdl.handle.net/11250/163446
Date
2014-01
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  • Discussion papers (SAM) [578]
Abstract
We study how leader compensation affects public goods provision. We report

from a lab experiment with four treatments, where the base treatment was a standard

public goods game with simultaneous contribution decisions, while the three

other treatments allowed participants to volunteer to be the leader in their group

and make their contribution before the others. 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 63% relative to a situation where the leader is not compensated

and by more than 90% relative to a situation without a leader. A further

increase in the leader compensation, however, is detrimental to public goods provision;

it attracts less morally motivated leaders and creates a social crowding-out

effect that makes it harder to lead by example. Finally, we report from a survey

showing that the social crowding-out effect is also present in the population at

large. 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.
Publisher
Norwegian School of Economics. Department of Economics
Series
Discussion Papers;2/2014

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