Team Incentives and Organizational Form
AbstractConventional wisdom regarding nonprofit firms is that they are inefficient, due to the absence of a profit motive. However, the costs and product quality realized by profit-taking firms is determined by how well those firms deal with a host of internal incentive and information issues. A similar approach to the study of nonprofit organizations has not been attempted. This paper undertakes such an investigation, centered on the problem of providing incentives for members of a team to provide efficient effort. Holmstrom(1982) showed that the introduction of a budget-breaker, or principal, into a team allowed for the provision of such incentives where it would otherwise be impossible. A similar result obtains for a nonprofit team, but the role of principal differs from that found in profit-taking teams. It is shown that any of; donors, government regulators, or Trustees can fulfill this role in a nonprofit team. One implication of this is that nonprofit firms may indeed pay employees less than otherwise identical employees filling identical posts in profit-taking firms.
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Bibliographic InfoPaper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 9916.
Date of creation: 1999
Date of revision:
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Other versions of this item:
- NEP-ALL-2000-04-17 (All new papers)
- NEP-CDM-2000-04-17 (Collective Decision-Making)
- NEP-IND-2000-04-17 (Industrial Organization)
- NEP-LAB-2000-04-17 (Labour Economics)
- NEP-MIC-2000-04-17 (Microeconomics)
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