A static model of cooperation for group-based incentive plans

Whenever a company implements a group-based incentive plan for the first time, free-riding may destroy trust among employees and harm performance. We propose a static model to describe how employees make the decision of whether to cooperate or not, which considers material rewards and social preferences. Given the deep uncertainty involved, we conjecture that workers apply the Arrow-Hurwicz criterion, which considers a combination of the best- and the worst-case scenarios. We derive a set of hypothesis from this model that we validate using a dataset of 107 effectively implemented incentive plans. (c) 2008 Elsevier B.V. All rights reserved.