Reference no: EM133442338

Question: In "Social Preferences and the Response to Incentives: Evidence from Personnel Data", the authors present compelling evidence that workers in a fruit farm work harder under a piece-rate scheme versus a relative incentive scheme. Their explanation is that, because of altruism or other factors, workers internalize the negative impact they have on others under relative incentives, and thus work less hard. In their setting, however, workers get paid under relative incentives in the first half of the season and under piece rate on the second half. Moreover, average wages (per kg of fruit) are lower under the piece-rate scheme. Assuming that workers are loss-averse, explain why the evidence presented in the paper is consistent with an income-targeting approach, that is, workers work harder under piece rate (given lower per-kg wages) in order to match their daily wages obtained under relative incentives earlier in the season. Comment on the reasons the authors give in the paper to rule out this explanation. Point out if you agree or not with them, and why.