Absolute and relative rewards for individuals in team production

This paper examines the use of prizes as an incentive device in team production environments. We reward team members in two different ways. First, heterogeneously endowed individuals are given a monetary prize for high absolute levels of contributions. Secondly, a prize is given for high levels of contributions relative to endowment—token endowments represent abilities to contribute to the team. We find that both prize treatments significantly increase group contributions, but rewarding individuals based on absolute contributions also widens the dispersion between the high-contributor and the remainder of the group. Contributions are highest when the prize is for high relative contributions, and the dispersion in contributions is lower than with a prize for absolute contributions. Furthermore, these prizes could be self-funded since giving prizes creates more system-wide wealth than what the prize costs. These results have implications for work team environments in which prizes given for individual effort towards the group goal could raise overall effort levels.