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Question: 4 testing incentive pay in theory in january 2016 starbucks...

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4. Testing Incentive Pay (in Theory). In January 2016 Starbucks introduced incen- tive pay into its California stores, so managers get 2% of revenue.! In Oregon and Washington, stores pay managers a fixed wage. You initially have cross-sectional data on annual revenue for 2016 for all California, Oregon and Washington stores. You observe that the mean revenue in California stores is significantly larger than Oregon and Washington stores. (a) Can we conclude that incentive pay raises revenue? Explain how location can cause omitted variable bias. If you know the location of every store, what analysis can you do to reduce this bias? Explain why this analysis may work, and why is may not. (b) What other store characteristics may interfere with the comparison. What data would you like to help you to make this conclusion? Suppose we have concluded that incentive pay raises revenue (as best as we can) (c) Can we conclude that Starbucks should role out the scheme across the US? data would you need to test this? What analysis would you perform? (d) Can we conclude that incentive pay makes managers work harder? What extra

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