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Crowding Effects and Work Ethics

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  • Sverre Grepperud
  • Pål Andreas Pedersen
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    Abstract

    This paper analyses optimal contracts in a principal-agent model where the agent is intrinsically motivated, and there is an endogenous relationship between the structure of incentive payments and intrinsic motivation (crowding effects). The analysis shows that crowding effects have implications for the optimal contract, and that, under some conditions, the principal can make better achievements without implementing any economic incentives. Furthermore, it is shown that when high-powered incentives reduce intrinsic motivation (crowding-out), the first-best solution in a principal-agent framework is unattainable. Copyright 2006 The Authors; Journal compilation 2006 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd..

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9914.2006.00315.x
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    Bibliographic Info

    Article provided by CEIS in its journal LABOUR.

    Volume (Year): 20 (2006)
    Issue (Month): 1 (03)
    Pages: 125-138

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    Handle: RePEc:bla:labour:v:20:y:2006:i:1:p:125-138

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