Do Incentives Work? Success and Payoff Reversals with Rational Agents

We examine the effects of incentives in a simple model, where a set of rational agents works on a joint task. In the static model, we show that higher incentives (i.e., higher rewards for success) positively affect the success rate and the agents’ payoffs. This is in contrast to the dynamic model, where higher incentives can lower the success rate and may also reduce the agents’ payoffs in the case of two or more agents. These success reversals and payoff reversals can occur together, but also independently of each other