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Firms, Markets, and the Work Ethic

Author

Listed:
  • Abhijit Ramalingam

    (Department of Economics, Indiana University)

  • Michael Rauh

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

In this paper, we develop a new theory of the firm where the market is primarily an incentive system whereas the firm is an intrinsic motivation device. The firm is more efficient than the market when asset specificity and subjective risk are sufficiently high because it provides balanced incentives, fosters intrinsic motivation, and economizes on risk. An efficient firm is unambiguously the more ethical institution in the sense that the component of production effort due to intrinsic motivation and the agent's rents in exchange for commitment are higher. The exception is when the market approximates the first best.

Suggested Citation

  • Abhijit Ramalingam & Michael Rauh, 2008. "Firms, Markets, and the Work Ethic," Working Papers 2008-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2008-04
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    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2008-04-ramalingam-rauh.pdf
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    References listed on IDEAS

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    Cited by:

    1. Michael T. Rauh & Giulio Seccia, 2010. "Agency and Anxiety," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(1), pages 87-116, March.
      • Michael T. Rauh & Giulio Seccia, 2006. "Agency and Anxiety," Working Papers 2006-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

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    More about this item

    Keywords

    authority; conscientiousness; incentives; markets; multi-tasking; ownership; theory of the firm; work ethic;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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