Combining Egalitarian and Proportional Sharing Rules in Team Tournaments to Incentivize Energy-Efficient Behavior in a Principal-Agent Context

Abstract

Triggering the energy-efficient behavior of agents in firms simultaneously decreases costs and mitigates CO2 emissions. If firms use team tournaments to increase energy-efficient behavior and thus employee performance, they may face unintended consequences, like a bifurcation effect: Individuals drop out if they believe that they cannot win the contest. By contrast, high-performing employees may overexert themselves. Additionally, some individuals might be tempted to free-ride. In a field experiment with truck drivers, we analyze whether proportional sharing of the bonus within teams based on individual effort instead of egalitarian sharing reduces both bifurcation and free-riding during team tournaments. Our results reveal that (1) the team contest improves performance; (2) this increase in performance is overall slightly stronger under the proportional than under the egalitarian sharing rule, using ceteris paribus comparisons; and (3) the performance increase is mainly driven by the team member performing worse.