DP14283 | Material Incentives and Effort Choice: Evidence from an Online Experiment Across Countries

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We conduct in the an interactive online experiment framed as an employment contract between employer and worker. Subjects from the US and India are matched in pairs within and across countries. Employers make a one-period offer to a worker who can either decline or choose a high or low effort. The offer is made from within a restricted and variable set of possible contracts: high and low fixed wage; bonus and malus contracts; and bonus and malus with reneging. High effort is always efficient. Self-interest predicts a fraction of observed choices, but many choices indicate conditional or unconditional cooperation instead. Indian subjects are more likely to play unconditional cooperation and provide high effort more often. US subjects are more likely to follow self-interest. Indian subjects reach a more efficient outcome than US subjects in 5 of the 6 treatments. Survey data on demographics and attitudes to incentives is unable to predict behavioral differences between the two countries, suggesting the possible existence of cultural differences in the response to labor incentives.