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Power of Incentives in Public Organizations When Employees Are Intrinsically Motivated

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  • Erik Canton

Abstract

This paper studies the power of incentives in public organizations when some employees are intrinsically motivated to deliver the socially desirable outcome, while others are only driven by extrinsic incentives. To alleviate agency problems, the standard moral-hazard model suggests the use of instruments such as performance pay. This intervention might interact with intrinsic motivation. I introduce intrinsic motivation into the standard multiple-task moral-hazard model, and identify conditions under which extrinsic incentives lead to crowding in or crowding out of intrinsic motivation. The optimal reward structure shifts away from the use of monetary incentives when more employees are intrinsically motivated.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 161 (2005)
Issue (Month): 4 (December)
Pages: 664-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200512)161:4_664:poiipo_2.0.tx_2-9

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Cited by:
  1. Jocelyn Donze & Trude Gunnes, 2013. "Becoming “We” instead of “I”. Identity management and incentives in the workplace," Discussion Papers 760, Research Department of Statistics Norway.
  2. Echeverría, Manuel, 2012. "Value Oriented Organizations with Value Neutral Hierarchies," Working Papers 2012:25, Lund University, Department of Economics.
  3. Jana Vyrastekova & Sander Onderstal & Pierre Koning, 2010. "Self-Selection and the Power of Incentive Schemes: An Experimental Study," Tinbergen Institute Discussion Papers 10-074/1, Tinbergen Institute.
  4. Pierre Koning & J. Vyrastekova & S. Onderstal, 2006. "Team incentives in public organisations; an experimental study," CPB Discussion Paper 60, CPB Netherlands Bureau for Economic Policy Analysis.

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