Costly information acquisition:

The effects of wage inequality^*

Alexander Haering^†, Timo Heinrich^‡ and Sven Horak^§

September 2016

Abstract

In research and development information is often acquired within organizational structures. These social settings are usually characterized by wage inequality but it is difficult to study its influences on performance systematically. In this paper we analyze the causal effects of wage inequality on information acquisition performance under controlled laboratory conditions that allow us to systematically vary the pay structure. Our experimental results reveal that lower incentives can lead to better performance – a pattern that can be explained by reference-dependent preferences or satisficing.

Keywords: Information acquisition, wage inequality, experiment.

JEL Codes: C92, D83, J31, M52.