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Charity, incentives, and performance

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  • Dijk, Oege
  • Holmén, Martin

Abstract

We propose that donating profits to charity may improve firm performance through reduced moral hazard and increased effort in incomplete contract environments. This proposition is tested and confirmed in an incomplete contract principal-agent laboratory experiment where principals’ profits are donated to charity. The results show that both principals and agents have higher earnings in treatments where principals are working on behalf of a charity. Only in the charity treatments do agents respond positively to the effort levels suggested by the principals, and do higher requested levels of effort result in higher principal earnings.

Suggested Citation

  • Dijk, Oege & Holmén, Martin, 2017. "Charity, incentives, and performance," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 66(C), pages 119-128.
    • Handle: RePEc:eee:soceco:v:66:y:2017:i:c:p:119-128
    DOI: 10.1016/j.socec.2016.04.005
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    Cited by:

    1. Schwartz, Daniel & Keenan, Elizabeth A. & Imas, Alex & Gneezy, Ayelet, 2021. "Opting-in to prosocial incentives," Organizational Behavior and Human Decision Processes, Elsevier, vol. 163(C), pages 132-141.
    2. Bernhard E. Reichert & Matthias Sohn, 2022. "How Corporate Charitable Giving Reduces the Costs of Formal Controls," Journal of Business Ethics, Springer, vol. 176(4), pages 689-704, April.
    3. Daniel Schwartz & Elizabeth A. Keenan & Alex Imas & Ayelet Gneezy, 2017. "Opting-in to Prosocial Incentives," CESifo Working Paper Series 6840, CESifo.
    4. Thomas D. Shohfi & Roger M. White, 2020. "The dark side of individual blockholder philanthropy," Financial Management, Financial Management Association International, vol. 49(3), pages 741-767, September.
    5. Fang, Xing, 2022. "Why we hide good deeds? The selfless and anonymous donation behavior in crowdfunding," Technology in Society, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Charity; Incomplete contracts; Experiments;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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