Economics

Organizations and Markets Eduardo Huguet Tagea

Seminar 3

Incentive management
1.Cases and exercises

1.1. Trophy kids

(1) The main expectation of the millennials is based on increasing the flexibility of the
workplace and urge of recognition of their work. Those expectations can be managed
by redesigning the promotion systems and open them to the possibility to perform
smallest promotions based on continuous evaluation of the work. Attending the need
of flexibility, companies should flexibilize the schedules and allow remote working for
tasks that doesnt need physical presence.

(2) The main problem of excess of praise is that it looses its gratification effect, so the
marginal inner reward of an extra praise becomes smaller and looses their efficacy as
an incentive.

(3) Yes, they can expect a different behavior because the millenials will give more
value to the daily progression more than the overall achievement of the objective, due
to their need of constant evaluation.


1.2. Farsighted contracting

This design is more effective when we have low level of reciprocity in cooperation. For
instance, if we have an unreliable provider, the threat of using the punitive
mechanisms established in case they dont accomplish the command can push them to
meet the deadlines by making them taking risks. In the other hand, this modality of
contracting can be counterproductive when there is a high level of voluntary
cooperation, by creating a threatening environment that would destroy the reciprocal
cooperation.

1.3. Participatory structures

No, we shouldnt. In my opinion, a business should be managed in a technocratic basis
and with very well delimited areas of responsibility and a rigid bureaucratic system to
normative the procedures for promotion programs by fixing clearly the criteria (based
on technical basis) to assign the responsibility jobs in the most accurate and rational
way, attending only to rational and evaluable criteria to fix the required qualities of the
leader.

Economics Organizations and Markets Eduardo Huguet Tagea
Seminar 3


Its not a good idea trying to run teams as strict democracies but its very positive for
the group dynamic to let spontaneous and informal leaderships flow, and this strategy
is not necessarily fought with hierarchy.

2. Questions on incentive management

(1) What is the difference between reciprocity-based cooperation and the
cooperation based on repeated transactions

The main difference falls on the support of the relationship. In the case of the
cooperation based on repeated transaction, the cooperative activity is supported by
the experience of past transactions, while in the reciprocity-based cooperation flows
from the will of the agents to cooperate with a principal it he treats them kindly.


(2) How would you apply the experimental results obtained by Fehr and Gachter and
Carpenter on Public Goods to manage quality control in a firm or service activity?

Following those results, giving the costumer the possibility to punish the
uncooperative behavior of the employees could be a great stimulus to boost
cooperation. This could be implemented by external services and platforms that
provide the costumers the possibility to evaluate the quality of the service received
and, with this data, study the performance of the employees and introduce punitive
measures as, for instance, eliminating them from the organization.
And going a bit further, the rest of the group members should also has the possibility
to identify and penalize those parasitic behaviors within the organization.


(3) Illustrate with an example each one of the four rules mentioned in the Cowen
reading

1. Offering monetary reward when performance a task is highly responsive to
extra effort: a really common example of this is the extra compensation for the
night shifts in some works.

2. Offering monetary reward when intrinsic motivation is weak: a good example
of this is when in a small startup the members of the group have assigned areas
of responsibility that maybe are not related with the principal object of their
work but needs to be done, like for instance the ordinary office supply or the
minor administrative procedures. They can get an extra payment for doing
these low-motivation tasks and avoid them to accumulate.



Economics Organizations and Markets Eduardo Huguet Tagea
Seminar 3


3. Pay monetary rewards when receiving money for a task produces social
approval: the extra tip that a waiter receives from their clients as a show of
gratification for the service.
4. High rewards tend to make individuals choke: If the failing of a single subject
can condition the permanency of an student in a college, this can induce in him
an stressing feeling that get his progression stuck.