Self-selection and the power of incentive schemes: An experimental study

We examine how self-selection of workers into firms depends on the power of the firms' incentive schemes and how it affects the perfor- mance of firms that increase the power of the incentive schemes. In a laboratory experiment, we let subjects choose between (low-powered) team incentives and (high-powered) individual incentives. We observe that subjects exhibiting high trust or reciprocity in the trust game are more likely to choose team incentives. When exposed to individual in- centives, workers who chose team incentives perform worse if both the unobservable interdependency between workers and their incentive to cooperate under team incentives are high.