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Incentive
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=== Self-selection effects of incentives === Employees know more about their own abilities, competitiveness and risk attitudes than potential employers. Due to this asymmetric information, firms design incentives not only to enhance employeesโ motivation to act in the interests of the firm and maximize their output, but also to influence the type and quality of workers that they attract.<ref>{{Cite journal |last=Prendergast |first=Canice |date=March 1999 |title=The Provision of Incentives in Firms |journal=Journal of Economic Literature |volume=37 |issue=1 |pages=14โ15 |doi=10.1257/jel.37.1.7}}</ref> This is known as the self-selection or sorting effect of incentives. For example, empirical studies have shown that firms which implement pay-for-performance rather than fixed wage compensation schemes tend to attract more productive workers who are less risk averse.<ref>{{Cite journal |author1=Bram Cadsby, C. |author2=Song, F. |author3=Tapon, F. |date=April 2007 |title=Sorting and Incentive Effects of Pay for Performance: An Experimental Investigation |journal=The Academy of Management Journal |volume=50 |issue=2 |pages=389โ392}}</ref> Greater risk aversion reduces workers' willingness to work for variable as opposed to fixed pay.<ref>{{Cite journal |author1=Dohmen, T. |author2=Folk, A. |date=2010 |title=Yout Get What You Pay For: Incentives and Selection in the Education System |jstor=40784482 |journal=The Economic Journal |volume=120 |issue=546 |pages=257โ258|doi=10.1111/j.1468-0297.2010.02376.x |s2cid=12928709 |url=https://cris.maastrichtuniversity.nl/en/publications/4c771dbe-5bb2-4611-8ae7-814877f04261 }}</ref> Accordingly, firms may use incentives as a method of filtering out low productivity workers or workers who lack the personal characteristics that those firms are searching for.
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