Network Incentive Trade-Off Threshold Condition
RCTClinical Trial
When employees face competing social obligations to refer family members or friends who offer social transfers, employers must determine the precise monetary incentive required to compel employees to refer higher-skilled candidates instead.
Picture this
Imagine a worker who gets a $20 social benefit (or saves $20 in financial support) by giving a job referral to a struggling relative instead of a skilled acquaintance. To get the worker to choose the skilled candidate, the employer's performance bonus must exceed that $20 benefit divided by the worker's confidence in identifying who is actually more skilled.
What the evidence says
Under the mathematical threshold where performance pay exceeds the social transfer differential divided by signal precision, high-stakes performance pay (50 Rupees) successfully incentivized participants to overcome network social transfer differentials, shifting referrals away from relatives by 7 percentage points and toward higher-skilled coworkers by 8 percentage points.
- Who was studied
- N = 561 male adult labor market participants in Kolkata, India.
- How
- Microeconomic theoretical decision model parameterized and tested via lab-in-the-field RCT varying performance bonuses (0, 20, or 50 Rupees) and fixed fees (60, 80, or 110 Rupees).
What to do
Calculate the minimum required referral performance bonus by estimating the social or risk-sharing payout differential between candidate types and scaling by employee screening accuracy.
From the source
"Comparing these two expressions, i will select friend 1 if $P_i > \frac{\sigma_{i2}-\sigma_{i1}}{2\beta_i-1}$... increasing $P_i$ makes referring the high-ability friend relatively more attractive than referring the low-ability friend."
468 Job Referrals in India AER Dec12.pdf