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Optimal contracting with endogenous project mission

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  • Lea Cassar

Abstract

I present a model in which a principal selects one among many agents to develop a project and influences the agent’s ex post level of effort not by outcome-contingent rewards, but by the choice of the project’s mission. The closer the project’s mission to the agent’s preferred mission, the higher the agent’s intrinsic benefit from exerting effort. The principal and the agents disagree on what the project’s mission should be and the agents vary in how much they care about the project’s mission, i.e. they have heterogeneous unobservable intrinsic motivation levels. I derive the optimal mechanism (allocation rule, project’s mission, payment) to select and motivate the agent. I also consider situations where the project’s mission must be chosen prior to the allocation of the project and where the agents face budget constraints. Several applications are discussed.

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Paper provided by Department of Economics - University of Zurich in its series ECON - Working Papers with number 150.

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Date of creation: Mar 2014
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Handle: RePEc:zur:econwp:150

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Keywords: Optimal contracting; non-monetary incentives; mission preferences; intrinsic motivation;

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