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Team Incentives and Organizational Form

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  • Slivinski, Al

Abstract

Conventional wisdom regarding nonprofit firms is that the absence of a profit motive renders them inefficient. However, the costs and product quality realized by profit-taking firms is determined by how well those firms deal with a variety of internal incentive and information problems, and this should be equally true for nonprofits. This article analyzes the team incentive problem in nonprofit organizations. Holmstrom (1982) showed that the introduction of a budget-breaker into a team permitted the creation of incentives to provide efficient effort when it is otherwise 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 shown to be that nonprofit firms may indeed pay employees less than otherwise identical employees earn in identical jobs in profit-taking firms. Copyright 2002 by Blackwell Publishing Inc.

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  • Slivinski, Al, 2002. " Team Incentives and Organizational Form," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(2), pages 185-206.
  • Handle: RePEc:bla:jpbect:v:4:y:2002:i:2:p:185-206
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    References listed on IDEAS

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    Cited by:

    1. Kirstein, Roland, 2003. "Imperfect Monitoring of Monitoring Agents: One Reason Why Hierarchies Can Be Superior to "Lean" Organizations," CSLE Discussion Paper Series 2003-07, Saarland University, CSLE - Center for the Study of Law and Economics.
    2. Patricia Crifo & Jean-Louis Rullière, 2004. "Incentives and Anonymity Principle: Crowding Out Toward Users," CESifo Working Paper Series 1316, CESifo Group Munich.

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