Public-private differences in incentive structures: a laboratory experiment on work motivation and performance

In this study, we contribute to a longstanding research agenda on the distinctions between the public and private sectors by examining whether work effort differs between public and private settings, and by testing the ways that sector-specific incentives can address such differences. We extend existing research by developing an advanced psychomotor vigilance task that examines multi-dimensional performance (speed and accuracy) in a laboratory experiment. Drawing from a population that is similar along many dimensions, subjects are recruited into public and private settings on the basis of their motivation (majors they have chosen to study and the types of compensation they receive). Using a two-by-two factorial design of public (public job motivated and non-monetary motivated) and private (monetary-motivated) settings, with and without incentives, our findings indicate that public and private settings differ in performance and response to incentives. Methodologically, we show how the choices that experimental subjects make can be exploited for modeling sectoral differences in a more naturalistic way than with a short-term prime, while preserving the advantages of a controlled laboratory experiment.