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Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets

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  • Rebitzer, James B.
  • Taylor, Lowell J.

Abstract

Employers structure pay and employment relationships to mitigate agency problems. A large literature in economics documents how the resolution of these problems shapes personnel policies and labor markets. For the most part, the study of agency in employment relationships relies on highly stylized assumptions regarding human motivation, e.g., that employees seek to earn as much money as possible with minimal effort. In this essay, we explore the consequences of introducing behavioral complexity and realism into models of agency within organizations. Specifically, we assess the insights gained by allowing employees to be guided by such motivations as the desire to compare favorably to others, the aspiration to contribute to intrinsically worthwhile goals, and the inclination to reciprocate generosity or exact retribution for perceived wrongs. More provocatively, from the standpoint of standard economics, we also consider the possibility that people are driven, in ways that may be opaque even to themselves, by the desire to earn social esteem or to shape and reinforce identity.

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This chapter was published in:

  • O. Ashenfelter & D. Card (ed.), 2011. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 4, number 4.
    This item is provided by Elsevier in its series Handbook of Labor Economics with number 4-08.

    Handle: RePEc:eee:labchp:4-08

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    Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

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    Keywords: Principal agent models; Intrinsic and extrinsic motivation;

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    Cited by:
    1. Rebérioux, Antoine & Caroli, Eve & Breda, Thomas & Bassanini, Andrea, 2013. "Working in family firms : less paid but more secure ? Evidence from French matched employer-employee data," Economics Papers from University Paris Dauphine 123456789/7244, Paris Dauphine University.
    2. Brigham Frandsen & James B. Rebitzer, 2014. "Structuring Incentives Within Organizations: The Case of Accountable Care Organizations," NBER Working Papers 20034, National Bureau of Economic Research, Inc.
    3. Eriksson, Tor & Villeval, Marie Claire, 2012. "Respect and relational contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 286-298.
    4. Alexander Pepper & Julie Gore, 2013. "The economic psychology of incentives: an international study of top managers," LSE Research Online Documents on Economics 51655, London School of Economics and Political Science, LSE Library.
    5. James B. Rebitzer & Mark E. Votruba, 2011. "Organizational Economics and Physician Practices," NBER Working Papers 17535, National Bureau of Economic Research, Inc.

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