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Incentives in Agency Relationships: To Be Monetary or Non-Monetary?

Author

Listed:
  • Patricia Crifo

    (GATE, Ecole Normale Superieure LSH)

  • Marc-Arthur Diaye

    (Université d’Evry Val d’Essonne (EPEE))

Abstract

In this paper, we develop a Principal-Agent model with both monetary and non-monetary incentives. We show that the latter are always more efficient, that is Pareto-dominate, monetary incentives. Indeed, we not only show that all what monetary incentives can do, non-monetary incentives can do it as well, we go further and show the possibility for non-monetary incentives to increase intrinsic motivation, thereby compensating the fact that higher rewards, rather than being encouraging can reduce the motivation to provide effort. However, from a practical point of view, implementing such a scheme within firms requires that the Principal knows the intrinsic value system of the Agent which, as a by-product, gives rise to specific and interesting issues.

Suggested Citation

  • Patricia Crifo & Marc-Arthur Diaye, 2004. "Incentives in Agency Relationships: To Be Monetary or Non-Monetary?," Documents de recherche 04-09, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:04-09
    as

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    References listed on IDEAS

    as
    1. Marc-Arthur Diaye & Daniel Schoch, 2003. "Preferences as Desire Fulfilment," Documents de recherche 03-17, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    2. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(3), pages 489-520.
    3. Lane,Robert E., 1991. "The Market Experience," Cambridge Books, Cambridge University Press, number 9780521407373.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Agency Relationships; Non-Monetary Incentives; Motivation Crowding Effect;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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