Team incentives in public organisations; an experimental study

Using a simple production game, we investigate whether public firms perform better when they increase the power of their workers’ incentive schemes. 

In a laboratory experiment, subjects choose between a ‘public firm’ and a ‘private firm’ with team and individual incentives, respectively. When exposed to individual incentives, workers in the public firm increase effort in one parametrisation, but show a decrease in another. One reason for the latter observation is that reciprocators self-select in the public firm, rendering cooperation profitable.