Attracting Creativity: The Initial and Aggregate Effects of Contract Selection on Creativity-Weighted Productivity

Abstract

Using an experiment in which participants design rebus puzzles, we extend recent research on creativity-weighted productivity (i.e., quantity weighted by creativity ratings) by allowing participants to choose between a contract that rewards creativity-weighted productivity or one that rewards quantity only. As such, we examine both of the factors that agency theory suggests can arise from contingent compensation: (1) influencing effort (to address the moral-hazard problem of hidden action) and (2) attracting ability (to address the adverse-selection problem of hidden information). We find that participants who choose a creativity-weighted pay scheme have greater self-perceived creativity than those who choose a quantity-only scheme, and that this perceived creativity advantage manifests itself in significantly higher creativity-weighted productivity scores in initial production. For production as a whole, however, we observe a different pattern. Namely, whether compensation contracts are randomly assigned or self-selected, participants operating under a quantity-only scheme eventually produce just as many high-creativity puzzles as their creativity-weighted counterparts, and also produce significantly more puzzles overall. Thus, the implications of contract selection on creativity-weighted productivity hinge on the importance of the head start attained by participants who self-select a creativity-weighted contract.

Keywords: Creativity, incentives, contingent compensation, multi-dimensional performance measurement, adverse selection

JEL Classification: C91, J33, D82, M40, M41, M46