Replication of “Is Pay for Performance Detrimental to Innovation?”

This study aims to replicate the key findings of Ederer and Manso (2013), an influential paper applying incentivized laboratory experiments to the study of entrepreneurship and innovation. Using the same experimental design involving a lemonade stand task, we will randomly assign subjects to three incentive conditions: fixed wage, standard pay-for-performance, and an "exploration" contract that tolerates early failure but rewards long-term success. We will test the original hypotheses that subjects under the exploration contract will engage in more exploratory behavior and be more likely to discover the optimal business strategy compared to the other conditions. We will measure exploration through subjects' location choices and variability in product decisions, as well as their final performance. The experiment will be conducted at Shanghai Jiao Tong University Smith Experimental Economics Research Center using the same program and instruction as the original study (with translation). A standard Snowberg/Yariv survey will be conducted. By replicating this study with a new sample, we aim to assess the reliability and generalizability of the original findings on how compensation structures impact innovation. The results will have implications for designing incentive schemes to motivate exploration and innovation in organizational settings.