Penalty Incentives Research Articles

Evolutionary Dynamics of Passive Housing Initiatives in New Rural Construction

In the context of China’s ambitious dual carbon goals, this study introduces an innovative reward–penalty incentive mechanism, grounded in evolutionary game theory, to develop a tripartite evolutionary game model concerning the construction of passive rural housing. This research meticulously analyzes the equilibrium and stability strategies of all involved parties and employs data simulation to examine the influence of varying parameters on the game dynamics. Our findings reveal that the government’s cost–benefit calculations significantly influence its decisions regarding passive housing initiatives. The study identifies optimal cost and benefit strategies for various developmental phases. Furthermore, the level of governmental rewards and penalties plays a crucial role in determining whether enterprises and farmers opt for passive housing solutions. The study establishes the efficacy of different incentive schemes at various stages. Importantly, the economic interests of enterprises and farmers are pivotal in their decision-making process regarding passive housing. The study advocates for a comprehensive set of measures to safeguard these interests, with a special emphasis on protecting farmers. In conclusion, this research offers substantial guidance for policy decisions aimed at transforming existing rural housing into passive housing, thereby aligning with China’s environmental and sustainability objectives.

Strategic regulation of memory in dsyphoria: a quantity-accuracy profile analysis

ABSTRACT The mechanisms underlying a tendency among individuals with depression to report personal episodic memories with low specificity remain to be understood. We assessed a sample of undergraduate students with dysphoria to determine whether depression relates to a broader dysregulation of balancing accuracy and informativeness during memory reports. Specifically, we investigated metamnemonic processes using a quantity-accuracy profile approach. Recall involved three phases with increasing allowance for more general, or coarse-grained, responses: (a) forced-precise responding, requiring high precision; (b) free-choice report with high and low penalty incentives on accuracy; (c) a lexical description phase. Individuals with and without dysphoria were largely indistinguishable across indices of retrieval, monitoring, and control aspects of metamemory. The results indicate intact metacognitive processing in young individuals with dysphoria and provide no support for the view that impaired metacognitive control underlies either memory deficits or bias in memory reports that accompany dysphoria.

The effect of performance pay incentives on market frictions: evidence from medicare.

Medicare has increased the use of performance pay incentives for hospitals, with the goal of increasing care coordination across providers, reducing market frictions, and ultimately to improve quality of care. This paper provides new empirical evidence by using novel operations and claims data from a large, independent home health care firm with the Hospital Readmissions Reduction Program (HRRP) penalty on hospitals providing identifying variation. We find that the penalty incentive to reduce re-hospitalizations passed through from hospitals to the firmfor atleast some types of patients, since it provided more care inputs for heart diseasepatients discharged from hospitals at greater penalty risk and that contributed more patients to the firm. This evidence suggests that HRRP helped increase coordination between hospitals and home health firms without formal integration. Greater home health effort does not appear to have led to lower patient readmissions.

Mitigation of the Inefficiency in Imbalance Settlement Designs Using Day-Ahead Prices

The design of electricity imbalance pricing mechanisms is internationally controversial. Policies on whether to permit virtual trading for market participants and whether, or how, to impose penalty incentives on the imbalance volumes vary widely. Furthermore, market designs vary depending whether the imbalance prices are obtained directly from real-time trading or based upon the offer and demand functions from the day-ahead energy markets. This paper develops an analytical framework for evaluating designs for imbalance settlement mechanisms and we have selected the Japanese electricity market, which has undergone several revisions in its imbalance mechanism, as a good example to assess such variations. We develop a predictive approach for the imbalance volumes and price densities using two-step quantile regressions and derive a new trading optimization for a virtual trader's arbitrage position. We construct supporting models to estimate prediction errors for renewable power and demand as drivers of imbalance volume. The empirical analysis reveals that even in a mechanism with imbalance penalties based upon day-ahead reference prices, virtual trading may still be beneficial to market participants as well as to the system operator. We also find that greater market transparency is crucial for increased benefits. The insights generalize beyond the Japan case study.

Research on the effectiveness of monitoring mechanism for “yield to pedestrian” based on system dynamics

“Yield to pedestrian” at crosswalks is gradually becoming a popular issue in traffic engineering. In this issue, traffic management department (TMD), drivers and pedestrians form an evolutionary system, and they interact and influence each other therein. In order to analyze both the riskiness and effectiveness of this system, we propose a dynamical model based on evolutionary game theory, where TMD, drivers and pedestrians compete with each other. Interestingly, if penalty–incentive​ control is introduced, that is, both punishment and rewarding policy are executed by superior government, evolutionary outcomes indicate that all drivers choose to give way to pedestrians even without any supervision from TMD or pedestrians. Moreover, when the control strategy is absent, full cooperation of drivers can also be achieved given a certain supervision rate of TMD. We hope this finding can substantially improve the safety of pedestrians crossing roads.

The combined effect of perspective-taking and incentives on professional skepticism

PurposeThis paper aims to investigate the combined effect of two interventions, perspective taking and incentives, on auditors’ professional skepticism (hereafter skepticism) when auditing complex estimates. Specifically, this paper examines the different ways that perspective taking (management versus inspector) and incentives (absent versus reward versus penalty) combine to impact skepticism.Design/methodology/approachThis paper uses an experiment with 177 experienced Big 4 auditors. The experiment used a 2 (management vs inspector perspective) × 3 (absent vs reward vs penalty incentives) between-subjects design.FindingsIn the absence of incentives, adopting a management perspective raises situational skepticism when measuring skepticism as appropriateness of management’s fair value estimate while adopting an inspector perspective raises situational skepticism when measuring skepticism as need for more evidence. The authors find some evidence that incentives complement perspective-taking by enhancing those aspects of skepticism for which perspective-taking performs poorly. When assessing management assumptions, auditors adopting an inspector perspective enhance their skepticism more substantially than those adopting a management perspective, and this enhancement is greater with rewards than with penalties. However, this study does not detect an interaction between incentive type and perspective-taking on auditor skepticism in relation to gathering additional evidence.Originality/valueThis paper extends the literature by shifting the focus from a single perspective to a comparison of two perspective-taking approaches and discusses how each of these approaches enhances different aspects of skepticism. This paper also illustrates the importance of the interplay between perspective-taking and incentives in enhancing auditor skepticism.

Impacts of Performance Pay for Hospitals: The Readmissions Reduction Program

US policy increasingly ties payments for providers to performance on quality measures, though little empirical evidence guides the design of such incentives. I deploy administrative data to study a large federal program that penalizes hospitals with high readmissions rates. Using policy-driven variation in the penalty incentive across hospitals for identification, I find that hospital responses to the penalty account for two-thirds of the observed decrease in readmissions over this period, as well as a decrease in heart attack mortality. Quality improvement accounts for about one-half of the decrease in readmissions; the remainder is explained by selective admission of returning patients. (JEL G22, H51, I11, I12, I13, I18)

Selection and Incentives Under Time Pressure: The Importance of Framing

In this paper we investigate whether the framing of the incentives used to foster participation into contexts characterized by high degrees of time pressure affects individuals' self-selection. At this aim we run a lab-in-the-field experiment structured in two parts. The first part investigates individual characteristics that affect performance under time pressure, while the second is devoted to analyze how the decision to work under time pressure is affected by the reward/punishment framing of incentives. We find that individuals characterized by a high degree of risk aversion perform worse under time pressure. Nonetheless, when facing a penalty incentive scheme these individuals are more likely to choose to work with strict term limits, suggesting that penalty contracts might generate adverse selection problems.

A System Dynamics Model for Safety Supervision of Online Car-Hailing From an Evolutionary Game Theory Perspective

Car-hailing safety supervision is of great significance to ease the pressure on urban public transportation and facilitate people to travel safely and conveniently. In this article, a novel tripartite evolutionary game theory is proposed to describe the interaction mechanism of the government supervision department, online vehicle platform security monitoring department, and car sharing owner in the process of China’s Internet ride-hailing operation. The replication dynamics equations are used to elaborate the evolutionary stable strategies of stakeholders and system dynamics are presented to explore the dynamic simulation process of the evolutionary game model, analyze the stability of stakeholder interactions and determines an equilibrium solution. The meaningful simulation results are as follows: there is no stable strategy for the evolution of the three-party selection strategy; the optimized dynamic penalty incentive control scenario can not only effectively suppress fluctuations, but also achieve the effect of obtaining an ideal evolutionary stable strategy. It shows that the cost of government supervision, the platform monitoring and the online hailed car owner can influence the strategy choice of the stakeholders; the government should impose appropriate fines and penalty on the platform and reward car owners, which will help all parties to the game reach a stable state; appropriate punishment-reward factors help the system to reach steady state more easily. These results can provide a theoretical guidance for the government to promote the development of online car-hailing service and establishment of the supervision and management system.

Effectiveness of bonus and penalty incentive contracts in supply chain exchanges: Does national culture matter?

In this study, we investigate the impact of national culture on the effectiveness of bonus and penalty incentive contracts in supply chain exchanges. We conducted laboratory experiments in Canada, China, and South Korea, involving transactional exchanges in which suppliers were presented with either bonus or penalty contracts. Then we compared suppliers’ contract acceptance, level of effort, and shirking across national cultures. Our findings reveal critical cultural influences on contract effectiveness. We show that although acceptance of bonus contracts is comparable across cultures, suppliers from Canada, a national culture considered low in power distance and high in humane orientation, exhibit lower acceptance rates of penalty contracts. In addition, we find evidence that suppliers associated with collectivist cultures exert more effort and shirk less in bonus contracts but these relationships also are more complex. When we compare contract effectiveness across bonus and penalty contracts within a given cultural setting, we find in all three countries greater acceptance of bonus contracts than penalty contracts. Also, after contracts are accepted, bonus contracts are more successful in China because suppliers exert greater effort and shirk less under bonus contracts than penalty contracts. However, in Canada and South Korea, the results of accepted contracts for both penalty and bonus contracts are nearly indistinguishable.

Cascading controls: The effects of managers’ incentives on subordinate effort to help or harm

Whether managers achieve their incentivized goals is a function of their subordinates' effort toward those goals. In this study we use an experiment to examine the effect of the managers' incentives on the effort choices of the subordinates. We consider two factors theory suggests will interact to affect subordinate behavior: 1) the framing of the manager's incentive as either a bonus or a penalty and 2) the subordinate's relationship with the manager. We use the participants' sacrifice of personal compensation as our proxy for effort, and predict and find that subordinates who perceive a high (low) quality relationship expend greater (less) effort to help when their manager faces a penalty relative to a bonus. In a typical hierarchy, these results reveal that a single incentive placed on a given manager can also affect the potentially numerous subordinate employees not directly subjected to the incentive. We show that this cross-hierarchy cascading effect is either a greater benefit or greater cost to the organization, depending upon the subordinate's perception of the relationship with the manager. Additionally, we find that a penalty incentive frame motivates low relationship quality subordinates to not only withhold effort to help the manager, but to exert costly effort to harm the manager. Our results advance literature investigating the interactive effects of controls and incentive contract framing by documenting a setting in which penalties negatively affect effort.

The impact of different incentive schemes on asset prices

How people are incentivized is one of the main drivers of how they behave. In laboratory asset markets we evaluate the impact of four trader incentive bonus, bonus with cap, linear, and penalty – on asset prices and trader behavior. We find that (i) an asset with identical expected dividend shows price levels which differ by more than 100 percent depending on the incentive scheme subjects face. In particular, prices of markets populated by subjects with bonus incentives show the highest prices, whereas those with penalty-like incentivized subjects exhibit the lowest. (ii) However, subjects act approximately rational as different incentives generate different optimal price levels. (iii) In markets where different subjects have different incentive schemes we find that those with bonus incentives exhibit a riskier investment behavior and prefer the riskier asset, whereas subjects with penalty incentives invest conservatively and mainly hold cash. Since we find no difference in risk attitude of subjects prior to the experiment, differences in investment behavior are induced by the applied incentives. Our results highlight that incentives on financial markets have a huge impact on asset prices and investment behavior.

The Effects of Risk Preference and Loss Aversion on Individual Behavior under Bonus, Penalty, and Combined Contract Frames

ABSTRACT: This study examines the effects of risk preference and loss aversion on individual responses to differently framed, yet economically equivalent, incentive contracts. We extend prior research by examining contracts with combinations of bonus, penalty, and clawback incentives. Contracts framed as a combination of bonus and penalty incentives, especially those framed as a clawback, are less attractive to participants than contracts with bonus- or penalty-only incentives. Further, research suggests that individuals' contract preferences are due primarily to loss aversion. We test this conjecture with a new measure of loss aversion. Results indicate that our measure of loss aversion is well calibrated to encompass variation in loss aversion. In addition, participants' loss preferences explain a significant portion of the differences in observed behavior. Importantly, this relation is less significant for clawback contracts, indicating that other preferences may be driving individuals' strong reactions to these contract frames.

Effects of Performance Measure Preference and Choice on Intrinsic Incentives

This study contributes to the accounting literature by providing theory and evidence on how the performance measurement process influences subordinate’s intrinsic incentives. The study investigates competing theories concerned with the research question of how subordinate’s performance measure preference and superior’s performance measure choice influence subordinate’s intrinsic bonus and penalty incentives associated with favorable performance outcomes. This study uses a field experiment and a behavioral economic method to control extrinsic incentives and to monetize the intrinsic incentive. Performance measure preference and choice are found to interactively influence intrinsic bonus and penalty incentives in a way that is consistent with self-determination theory and the enabling and coercive roles of accounting but not with attribution theory. Subsequent analysis reveals performance measure preference and choice influence intrinsic incentives by influencing subject’s sense of personal agency and skill but not by providing information or reducing uncertainty.

Qualitative Insights Into How Pediatric Pay-for-Performance Programs Are Being Designed

Pediatric pay-for-performance (P4P) programs are proliferating, and little is known about them. The goal of this study is to better understand how these programs began, and how they are designed and implemented from the perspectives of those with experience running pediatric P4P programs. Cross-sectional semistructured interviews with named program directors and key supporting staff from 11 of 17 publicly described pediatric P4P programs that have been in operation for at least 1 year (commercial and Medicaid sponsored) regarding their program's beginning, design, top challenges and recommendations, impact, and considerations regarding the needs of children with chronic health conditions. Eleven programs have allocated approximately $221 million toward pediatric P4P efforts by means of both bonus and penalty incentives, potentially affecting 4.3 million children. They struggle with involving pediatricians, desiring more vetted pediatric performance measures and strategies for generally dealing with small sample sizes, and targeting the quality of care delivered to children with chronic health conditions, but they generally view these efforts to be effective. Those with experience running these early pediatric P4P programs show that pediatricians have not necessarily been involved in program design, face basic uncertainties of P4P program design, and generally do not target the care provided to children with chronic health conditions. They desire greater input from physicians who care for children and vetted pediatric measures, and they need help facing methodological challenges, such as small sample size and risk adjustment.

The Effects of Risk Preference and Loss Aversion on Individual Behavior Under Bonus, Penalty, and Combined Contract Frames

This study examines the effects of risk preference and loss aversion on individual responses to differently framed, yet economically equivalent, incentive contracts. We extend prior research by examining contracts with combinations of bonus, penalty, and clawback incentives. Contracts framed as a combination of bonus and penalty incentives, especially those framed as a clawback, are less attractive to participants than contracts with bonus or penalty-only incentives. Further, research suggests that individuals’ contract preferences are due primarily to loss aversion. We test this conjecture with a new measure of loss aversion. Results indicate that our measure of loss aversion is well calibrated to encompass variation in loss aversion. In addition, participants’ loss preferences explain a significant portion of the differences in observed behavior. Importantly, this relation is less significant for clawback contracts indicating that other preferences may be driving individuals’ strong reactions to these contract frames.

Intertemporal Framing Issues in Management Compensation

This study investigates whether manager–decision-makers’ expectations about incentive compensation and environmental uncertainty influence investment decisions through their effect on the decision maker's implied discount rate. This is, to our knowledge, a first attempt to manipulate implicit risk, the risk to future payoffs associated with environmental uncertainty. Both these factors and waiting time are expected to influence implied discount rates. The study investigates discount rate influences under both bonus and penalty incentive plans. The hypothetical bonuses are year-end cash bonuses; the penalties are opportunity costs. Responses were analyzed using both analysis of variance and regression. The regression analysis was used to separate time discounting from the other factors affecting implied discount rates. Subjects’ responses to proposed changes in the timing of cash bonuses were dramatic when an expanding economy was suggested. However, subjects’ responses to penalty provisions were less dramatic than corresponding responses to the out-of-pocket negative outcomes studied in previous research. In some situations, penalty provisions may be more effective for inducing investment than bonus provisions. In addition, the results suggest that efforts to change management decision making using deferred compensation may require more deferred compensation than time discounting alone would require.

Bonus and penalty incentives contract choice by employees

Controlled experiments provided evidence that (1) employees are more likely to accept incentive contracts described in bonus terms than contracts that appear identical except for being described in penalty terms, and (2) when employees' judgment of their past performance is dependent on memory, the preference for bonus over penalty contracts increases with experience. These phenomena are explained in terms of the human information processing costs of communicating and evaluating the contract terms, and further implications are drawn for the empirical study of contracting.