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Power of Incentives in Public Organizations When Employees Are Intrinsically Motivated

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  • Erik Canton

Abstract

This paper studies the power of incentives in public organizations when some employees are intrinsically motivated to deliver the socially desirable outcome, while others are only driven by extrinsic incentives. To alleviate agency problems, the standard moral-hazard model suggests the use of instruments such as performance pay. This intervention might interact with intrinsic motivation. I introduce intrinsic motivation into the standard multiple-task moral-hazard model, and identify conditions under which extrinsic incentives lead to crowding in or crowding out of intrinsic motivation. The optimal reward structure shifts away from the use of monetary incentives when more employees are intrinsically motivated.

Suggested Citation

  • Erik Canton, 2005. "Power of Incentives in Public Organizations When Employees Are Intrinsically Motivated," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(4), pages 664-664, December.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200512)161:4_664:poiipo_2.0.tx_2-9
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    References listed on IDEAS

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    1. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
    2. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
    3. Ernst Fehr & Klaus M. Schmidt, 2004. "Fairness and Incentives in a Multi-task Principal-Agent Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 453-474, October.
    4. Dixit, Avinash, 1997. "Power of Incentives in Private versus Public Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 378-382, May.
    5. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 285-300, Summer.
    6. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 199-217.
    7. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK.
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    Citations

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    Cited by:

    1. Donze, Jocelyn & Gunnes, Trude, 2018. "Becoming “We” instead of “I”, identity management and incentives in the workplace," Journal of Economic Behavior & Organization, Elsevier, vol. 148(C), pages 105-120.
    2. Lamantia, Fabio & Pezzino, Mario, 2016. "Evolutionary efficacy of a Pay for Performance scheme with motivated agents," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 107-119.
    3. Pierre Koning & J. Vyrastekova & S. Onderstal, 2006. "Team incentives in public organisations; an experimental study," CPB Discussion Paper 60, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Patrick Francois, 2007. "Making a difference," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 714-732, September.
    5. Canoy, M. & in 't Veld, D., 2014. "How to boost the production of free services: In search of the holy referee grail," CeNDEF Working Papers 14-03, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    6. Jana Vyrastekova & Sander Onderstal & Pierre Koning, 2012. "Self-selection and the power of incentive schemes: an experimental study," Applied Economics, Taylor & Francis Journals, vol. 44(32), pages 4211-4219, November.
    7. Stijn VAN PUYVELDE & Marc JEGERS, 2016. "Heterogeneity and self-selection into nonprofit management," CIRIEC Working Papers 1603, CIRIEC - Université de Liège.
    8. repec:spr:scient:v:78:y:2009:i:2:d:10.1007_s11192-007-2017-0 is not listed on IDEAS
    9. Echeverría, Manuel, 2012. "Value Oriented Organizations with Value Neutral Hierarchies," Working Papers 2012:25, Lund University, Department of Economics.
    10. Yannis Georgellis & Vurain Tabvuma, 2010. "Does Public Service Motivation Adapt?," Kyklos, Wiley Blackwell, vol. 63(2), pages 176-191, May.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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