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Effort and Monetary Incentives in Nonprofit and For-Profit Organizations

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  • Joseph Lanfranchi

    ()
    (CEE - Centre d'études de l'emploi - Ministère de l'Enseignement supérieur et Recherche - Ministère du Travail, de l'Emploi et de la Santé, LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442)

  • Mathieu NARCY

    ()
    (CEE - Centre d'études de l'emploi - Ministère de l'Enseignement supérieur et Recherche - Ministère du Travail, de l'Emploi et de la Santé, TEPP - Travail, Emploi et Politiques Publiques - CNRS : FR3435 - Université Paris-Est Marne-la-Vallée (UPEMLV), ERUDITE - Equipe de Recherche sur l'Utilisation des Données Individuelles Temporelles en Economie - Université Paris-Est Créteil Val-de-Marne (UPEC) : EA437 - Université Paris-Est Marne-la-Vallée (UPEMLV))

Abstract

The goal of our paper is to analyze the differences in terms of effort sensitivity to monetary incentive schemes between nonprofit and for-profit salaried workers. Nonprofit organizations being more likely to be devoted to social missions, nonprofit workers would be more pro-socially motivated in their job that their for-profit counterparts. Therefore, monetary incentives like performance pay would be less effective in inducing effort in the nonprofit sector as nonprofit workers are ready to donate labour to their employers. Using workers' stated sensitivity of effort to current and hypothetical use of monetary incentives, we find a significantly higher sensitivity of effort in the for-profit sector using linear and ordered probit estimation. To account for the voluntary selection in sector, we apply an instrumental variable estimation technique and the findings confirm the existence of a positive correlation between unobserved variables explaining sector choice and the unobserved variables determining the sensitivity of effort to actual or hypothetical monetary incentives. Finally, using another econometric methodology based on the idea of omitted variable bias, we are able to conclude that the relative ineffectiveness of monetary incentives in the nonprofit sector is more likely to be due to the intrinsic motivation of nonprofit workers than to any other workers' personality trait like pessimism or optimism that could differ between the two sectors.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00856261.

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Date of creation: Jun 2012
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Handle: RePEc:hal:wpaper:halshs-00856261

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Related research

Keywords: pro-social motivation; effort; incentives; nonprofit organizations;

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  1. Ballou, Jeffrey P. & Weisbrod, Burton A., 2003. "Managerial rewards and the behavior of for-profit, governmental, and nonprofit organizations: evidence from the hospital industry," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1895-1920, September.
  2. Minkler, Lanse, 2004. "Shirking and motivations in firms: survey evidence on worker attitudes," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 863-884, June.
  3. Herold, Florian, 2010. "Contractual incompleteness as a signal of trust," Games and Economic Behavior, Elsevier, vol. 68(1), pages 180-191, January.
  4. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
  5. Besley, Timothy J. & Ghatak, Maitreesh, 2004. "Competition and Incentives with Motivated Agents," CEPR Discussion Papers 4641, C.E.P.R. Discussion Papers.
  6. Leete, Laura, 2000. "Wage equity and employee motivation in nonprofit and for-profit organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 43(4), pages 423-446, December.
  7. Patrick Francois & Michael Vlassopoulos, 2008. "Pro-social Motivation and the Delivery of Social Services," CESifo Economic Studies, CESifo, vol. 54(1), pages 22-54, March.
  8. Carpenter, Jeffrey & Myers, Caitlin Knowles, 2010. "Why volunteer? Evidence on the role of altruism, image, and incentives," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 911-920, December.
  9. Christopher Ruhm & Carey Borkoski, 2000. "Compensation in the Nonprofit Sector," NBER Working Papers 7562, National Bureau of Economic Research, Inc.
  10. Bernard M. S. van Praag & P. Frijters & Ada Ferrer-i-Carbonell, 2001. "The Anatomy of Subjective Well-Being," Discussion Papers of DIW Berlin 265, DIW Berlin, German Institute for Economic Research.
  11. Jed Devaro & Dana Brookshire, 2007. "Promotions and Incentives in Nonprofit and For-Profit Organizations," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 60(3), pages 311-339, April.
  12. Frey, Bruno S., 1997. "On the relationship between intrinsic and extrinsic work motivation1," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 427-439, July.
  13. Ada Ferrer-i-Carbonell & Paul Frijters, 2002. "How important is Methodology for the Estimates of the Determinants of Happiness?," Tinbergen Institute Discussion Papers 02-024/3, Tinbergen Institute.
  14. Joseph Lanfranchi & Mathieu Narcy & Makram Larguem, 2010. "Shedding new light on intrinsic motivation to work: evidence from a discrete choice experiment," Kyklos, Wiley Blackwell, vol. 63(1), pages 75-93, 02.
  15. Lanfranchi J. & Narcy M., 2006. "Wages and effort in the French for-profit and nonprofit sectors: Labor Donation Theory Revisited," Working Papers ERMES 0620, ERMES, University Paris 2.
  16. 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.
  17. 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.
  18. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  19. Astrid Pennerstorfer & Ulrike Schneider, 2010. "What Determines the (Internal) Wage Distribution in Non-Profit Organizations?," Kyklos, Wiley Blackwell, vol. 63(4), pages 580-596, November.
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