ABSTRACT

While financial incentives are increasingly used in field experiments to change health behavior, little is known about which design would lead to the highest efficacy. This study investigates the relative efficacy of two financial incentive schemes, threshold-based and proportional, to encourage effort. The threshold-based scheme rewards participants only upon achieving a specific target, while the proportional scheme offers incremental rewards that increase with higher achievement. Our theoretical model predicts that subjects exert more efforts under the threshold-based scheme than under the proportional scheme. We test this prediction in a pre-registered lab experiment using a real-effort task. The results indicate no significant difference in overall performance between the two schemes. However, the threshold-based scheme demonstrates greater cost-effectiveness by incentivizing participants at a lower total expense. In non-preregistered analyses, we explore potentially different dynamics that could have led to that result.