The Logic of the New Pay Systems Revisited–in the Light of Experimental and Behavioral Economics

Abstract

The article questions the logic of the new pay systems introduced in the public sector in many countries. The pay systems and their goals are consistent when looked upon through the lens of standard economic theory. In addition, we find no contradictions between the goals of the pay systems. However, if findings of experimental economics and behavioral economics are included in the analysis of the pay systems, this is not necessarily the case. Experimental economics and behavioral economics contribute with knowledge which must be taken into account when pay systems are designed.

Keywords:

• pay systems
• performance pay
• public sector
• behavioral economics
• experimental economics