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Making A Difference

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Author Info
Francois, Patrick

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Abstract

Despite the potential for free-riding, workers motivated by `making a difference' to the mission or output of an establishment may donate labour to it. When the establishment uses performance related compensation (PRC), these labour donations closely resemble a standard private provision of public goods problem, and are not rational in large labour pools. Without PRC, however, the problem differs significantly from a standard private provision of public goods situation. Specifically, in equilibrium: there need not be free-riding, decisions are non-monotonic in valuations, and contribution incentives are significant even in large populations. When PRC is not used, the establishment tends to favour setting low wages which help to select a labor force driven by concern for the firm's output. Expected output can actually fall with the wage in this situation. For sufficiently high levels of risk aversion, performance related pay can yield less expected output than when compensation is output independent.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5301.

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Date of creation: Oct 2005
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Handle: RePEc:cpr:ceprdp:5301

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Related research
Keywords: incentive schemes; privately provided public goods; public sector employment; voluntarism;

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Find related papers by JEL classification:
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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References listed on IDEAS
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  1. Carol Propper & Deborah Wilson, 2003. "The Use and Usefulness of Performance Measures in the Public Sector," The Centre for Market and Public Organisation 03/073, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  2. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November. [Downloadable!] (restricted)
  3. David Lewin, 2003. "Incentive Compensation in The Public Sector: Evidence and Potential," Journal of Labor Research, Transaction Publishers, vol. 24(4), pages 597-619, October. [Downloadable!] (restricted)
  4. Canice Prendergast, 2003. "The Limits of Bureaucratic Efficiency," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 929-958, October. [Downloadable!] (restricted)
  5. repec:rus:hseeco:124059 is not listed on IDEAS
  6. Duncan, Brian, 1999. "Modeling charitable contributions of time and money," Journal of Public Economics, Elsevier, vol. 72(2), pages 213-242, May. [Downloadable!] (restricted)
  7. Jed DeVaro & Dana Samuelson, 2005. "Why Are Promotions Less Likely in Nonprofit Firms?," Labor and Demography 0501010, EconWPA. [Downloadable!]
  8. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 285-300, Summer.
  9. Malcomson, James M., 1999. "Individual employment contracts," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 35, pages 2291-2372 Elsevier. [Downloadable!] (restricted)
    Other versions:
  10. repec:rus:hseeco:122160 is not listed on IDEAS
  11. Corneo, Giacomo & Rob, Rafael, 2003. "Working in public and private firms," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1335-1352, August. [Downloadable!] (restricted)
  12. Vicary, Simon, 2000. "Donations to a public good in a large economy," European Economic Review, Elsevier, vol. 44(3), pages 609-618, March. [Downloadable!] (restricted)
  13. Paul A. Grout & Michelle J. Yong, 2003. "The Role of Donated Labour and Not for Profit at the Public/Private Interface," The Centre for Market and Public Organisation 03/074, Department of Economics, University of Bristol, UK. [Downloadable!]
  14. Menchik, Paul L. & Weisbrod, Burton A., 1987. "Volunteer labor supply," Journal of Public Economics, Elsevier, vol. 32(2), pages 159-183, March. [Downloadable!] (restricted)
  15. Patrick Francois, 2003. "Not-For-Profit Provision of Public Services," Economic Journal, Royal Economic Society, vol. 113(486), pages C53-C61, March. [Downloadable!] (restricted)
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  16. Goddeeris, John H, 1988. "Compensating Differentials and Self-selection: An Application to Lawyers," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 411-28, April. [Downloadable!] (restricted)
  17. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  18. Roomkin, Myron J & Weisbrod, Burton A, 1999. "Managerial Compensation and Incentives in For-Profit and Nonprofit Hospitals," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 750-81, October.
  19. H. Naci Mocan & Erdal Tekin, 2003. "Nonprofit Sector and Part-Time Work: An Analysis of Employer-Employee Matched Data on Child Care Workers," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 38-50, 01. [Downloadable!] (restricted)
    Other versions:
  20. Christopher Ruhm & Carey Borkoski, 2000. "Compensation in the Nonprofit Sector," NBER Working Papers 7562, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK. [Downloadable!]
  22. Preston, Anne E, 1989. "The Nonprofit Worker in a For-Profit World," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 438-63, October. [Downloadable!] (restricted)
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