Abhijit Ramalingam (Department of Economics, Indiana University) Michael Rauh (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
Additional information is available for the following
registered author(s):
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.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number
2008-04.
Find related papers by JEL classification: M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility M52 - Business Administration and Business Economics; Marketing; Accounting - - 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, and Operations
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Ernst Fehr & Alexander Klein & Klaus M Schmidt, 2007.
"Fairness and Contract Design,"
Econometrica,
Econometric Society, vol. 75(1), pages 121-154, 01.
[Downloadable!] (restricted)
Other versions:
Ernst Fehr & Alexander Klein & Klaus M. Schmidt, 2005.
"Fairness and Contract Design,"
Discussion Papers
67, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
[Downloadable!]