Bonus versus penalty: How robust are the effects of contract framing?

Jonathan de Quidt; Francesco Fallucchi; Felix Kölle; Daniele Nosenzo; Simone Quercia

doi:10.1007/s40881-017-0039-9

Bonus versus penalty: How robust are the effects of contract framing?

J Econ Sci Assoc. 2017;3(2):174-182. doi: 10.1007/s40881-017-0039-9. Epub 2017 Sep 23.

Authors

Jonathan de Quidt^{1

2}, Francesco Fallucchi³, Felix Kölle⁴, Daniele Nosenzo⁵, Simone Quercia⁶

Affiliations

¹ 1Institute for International Economic Studies, Stockholm University, Stockholm, Sweden.
² 2CESifo, Munich, Germany.
³ 3Luxembourg Institute of Socio-Economic Research, Esch-sur-Alzette, Luxembourg.
⁴ 4Center for Social and Economic Behavior, University of Cologne, Cologne, Germany.
⁵ 5School of Economics, University of Nottingham, Nottingham, UK.
⁶ 6Institute for Applied Microeconomics, University of Bonn, Bonn, Germany.

Abstract

We study the relative effectiveness of contracts that are framed either in terms of bonuses or penalties. In one set of treatments, subjects know at the time of effort provision whether they have achieved the bonus/avoided the penalty. In another set of treatments, subjects only learn the success of their performance at the end of the task. We fail to observe a contract framing effect in either condition: effort provision is statistically indistinguishable under bonus and penalty contracts.

Keywords: Bonus; Contract framing; Fine; Loss aversion; Penalty.