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Oarsman Pay Parable

Imagine an ancient oarsman, rowing in a galley boat. Rowing takes effort, and risks personal injury, so all else equal an oarsman would rather not row, or row only weakly. How can his boss induce effort?

One simple approach is to offer a very direct and immediate incentive. Use slaves as rowers, and have a boss watch them, whipping any who aren’t rowing as hard as sustainably possible. This actually didn’t happen much in the ancient world; galley slaves weren’t common until the 1500s. But the idea is simple. And of course the same system could also work with cash; usually make positive payments for work, but sometimes fine those you discover aren’t working hard enough. Of course the boss can’t watch everyone all the time. But with a big enough penalty when caught, it might work.

Now imagine that the boss can’t watch each individual oarsman, but can only see the overall speed of the ship. Now the entire crew must be punished together, all or none of them. The boss might try to improve the situation by empowering oarsmen to punish each other for not rowing hard enough, and that might help, but rowers would also use that power for other ends, creating costs.

An even worse case is where the boss can only see how long it takes for the boat to reach its destination. Here the boss might reward the crew for a short trip, and punish them for a long one, but a great many other random factors will influence the length of the trip. Why bother to work hard, if it makes little difference to your chance of reward or punishment?

There is a general principle here. As we add more noise to the measurement of relevant outcomes visible to the ultimate boss, the harder it is to use incentives tied to such outcomes to incentivize rowers. This is true regardless of the type of incentives used. Yes, the lower the worst outcome, and the higher the best outcome, that the boss can impose, the stronger incentives can be. But even the strongest possible incentives can fail when noise is high.

Yes, one can create layers of bosses, with the lowest bosses able to see specifics best. But it can be hard to give lower bosses good incentives, if higher bosses can’t see well.

Another problem is if the boss doesn’t know just how hard each oarsman is capable of rowing. In this case most oarsmen get some slack, so that they aren’t punished for not doing more than they can. This is just one example of an “information rent”. In general, such rents come from any work-relevant info that the worker has that the boss can’t see. If rowers need to synchronize their actions with each other or with waves or wind or time of day. If a ship captain needs to choose the ship’s route based info on weather and pirates. If a captain needs to treat different cargo differently in different conditions. If a captain need to make judgements about whether to wait longer in port for more cargo.

In general, when you want a worker to see some local condition, and then take an action that depends on that condition, you must pay some extra rent. So the more relevant info that workers get, the more choices they make, and the more that rides on those choices, the more workers gain in info rents.

A related issue is the scope for sabotage. Angry resentful workers can seek hidden ways to hurt their bosses and ventures. So the more hard-to-detect ways workers have to hurt things, the more bosses want to treat them well enough to avoid anger and resentment. Pained, sullen, or depressed workers can also hurt the mood of co-workers, suppliers, customers, and investors whom they contact. And the threat of pain can stress workers, making it harder for them to think clearly and well. These issues tend to argue against often using beatings and pain for motivation, even if such things allow stronger incentives by expanding the range of possible outcomes.

Overall, these issues are bigger for more “complex” work, i.e., for more cognitive work, work that adapts more to diverse and new local conditions, and work in larger organizations. In the modern world, jobs have been getting more complex in these ways, and the organization and work literature I’ve read suggests that finding good work incentives is a central problem in modern organizations, and that more complex work is a big reason why modern workplaces substitute broad incentives and good treatment for the detailed and harsh rules and monitoring more common in past eras.

The literature I’ve read on the economics of slavery also uses job complexity to explain the severity of treatment of slaves. Slaves in artisan jobs, in cities, and in households were treated better than field slaves, arguably because of job complexity. They were beaten less, and paid more, and might eventually buy their own freedom.

Bryan Caplan has argued that ems would be treated harshly as slaves: Continue reading "Oarsman Pay Parable" »

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