IDEAS home Printed from https://ideas.repec.org/p/bol/bodewp/wp1072.html
   My bibliography  Save this paper

Competition Between For-Profit and Non-Profit Firms: Incentives, Workers Self-Selection, and Wage Differentials

Author

Listed:
  • F. Barigozzi
  • N. Burani

Abstract

We study optimal non-linear contracts offered by two firms competing for the exclusive services of workers, who are privately informed about their ability and motivation. Firms differ in their organizational form, and motivated workers are keen to be hired by the non-profit firm because they adhere to its mission. If the for-profit firm has a competitive advantage over the non-profit firm, the latter attracts fewer high-ability workers with respect to the former. Moreover, workers exert more effort at the for-profit than at the non-profit firm despite the latter distorts effort levels upwards. Finally, a wage penalty emerges for non-profit workers which is partly due to compensating effects (labor donations by motivated workers) and partly due to the negative selection of ability into the non-profit firm. The opposite results hold when it is the non-profit firm that has a competitive advantage.

Suggested Citation

  • F. Barigozzi & N. Burani, 2016. "Competition Between For-Profit and Non-Profit Firms: Incentives, Workers Self-Selection, and Wage Differentials," Working Papers wp1072, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:wp1072
    as

    Download full text from publisher

    File URL: http://amsacta.unibo.it/5354/1/WP1072.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Heyes, Anthony, 2005. "The economics of vocation or 'why is a badly paid nurse a good nurse'?," Journal of Health Economics, Elsevier, vol. 24(3), pages 561-569, May.
    2. Ghatak, Maitreesh & Mueller, Hannes, 2011. "Thanks for nothing? Not-for-profits and motivated agents," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 94-105, February.
    3. Patrick Francois, 2003. "Not-For-Profit Provision of Public Services," Economic Journal, Royal Economic Society, vol. 113(486), pages 53-61, March.
    4. Auriol, Emmanuelle & Brilon, Stefanie, 2014. "Anti-social behavior in profit and nonprofit organizations," Journal of Public Economics, Elsevier, vol. 117(C), pages 149-161.
    5. Preston, Anne E, 1988. "The Effects of Property Rights on Labor Costs of Nonprofit Firms: An Application to the Day Care Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 337-350, March.
    6. Roland Bénabou & Jean Tirole, 2016. "Bonus Culture: Competitive Pay, Screening, and Multitasking," Journal of Political Economy, University of Chicago Press, vol. 124(2), pages 305-370.
    7. Etienne Lehmann & Laurent Simula & Alain Trannoy, 2014. "Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1995-2030.
    8. Gregg, Paul & Grout, Paul A. & Ratcliffe, Anita & Smith, Sarah & Windmeijer, Frank, 2011. "How important is pro-social behaviour in the delivery of public services?," Journal of Public Economics, Elsevier, vol. 95(7), pages 758-766.
    9. Canice Prendergast, 2007. "The Motivation and Bias of Bureaucrats," American Economic Review, American Economic Association, vol. 97(1), pages 180-196, March.
    10. Robert Gibbons & Lawrence Katz, 1992. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 515-535.
    11. David Martimort, 1992. "Multi-principaux avec anti-sélection," Annals of Economics and Statistics, GENES, issue 28, pages 1-37.
    12. Makris, Miltiadis, 2009. "Incentives for motivated agents under an administrative constraint," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 428-440, August.
    13. H. Naci Mocan & Erdal Tekin, 2003. "Nonprofit Sector and Part-Time Work: An Analysis of Employer-Employee Matched Data on Child Care Workers," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 38-50, February.
    14. Josse Delfgaauw & Robert Dur, 2008. "Incentives and Workers’ Motivation in the Public Sector," Economic Journal, Royal Economic Society, vol. 118(525), pages 171-191, January.
    15. Preston, Anne E, 1989. "The Nonprofit Worker in a For-Profit World," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 438-463, October.
    16. Delfgaauw, Josse & Dur, Robert, 2010. "Managerial talent, motivation, and self-selection into public management," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 654-660, October.
    17. Francesca Barigozzi & Nadia Burani, 2016. "Screening workers for ability and motivation," Oxford Economic Papers, Oxford University Press, vol. 68(2), pages 627-650.
    18. Glaeser, Edward L. & Shleifer, Andrei, 2001. "Not-for-profit entrepreneurs," Journal of Public Economics, Elsevier, vol. 81(1), pages 99-115, July.
    19. Barigozzi, Francesca & Burani, Nadia, 2016. "Competition and screening with motivated health professionals," Journal of Health Economics, Elsevier, vol. 50(C), pages 358-371.
    20. Miltiadis Makris & Luigi Siciliani, 2013. "Optimal Incentive Schemes for Altruistic Providers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 15(5), pages 675-699, October.
    21. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
    22. Pita Barros, Pedro & Siciliani, Luigi, 2011. "Public and Private Sector Interface," Handbook of Health Economics, in: Mark V. Pauly & Thomas G. Mcguire & Pedro P. Barros (ed.), Handbook of Health Economics, volume 2, chapter 0, pages 927-1001, Elsevier.
    23. Paula James, 2002. "Do Non-profit Enterprises Pay More For Their Labor Inputs? An Examination of Hospital Behavior," Working Papers 02-07, New York University, Leonard N. Stern School of Business, Department of Economics.
    24. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
    25. Besley, Timothy & Ghatak, Maitreesh, 2007. "Retailing public goods: The economics of corporate social responsibility," Journal of Public Economics, Elsevier, vol. 91(9), pages 1645-1663, September.
    26. Delfgaauw, Josse & Dur, Robert, 2007. "Signaling and screening of workers' motivation," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 605-624, April.
    27. Roomkin, Myron J & Weisbrod, Burton A, 1999. "Managerial Compensation and Incentives in For-Profit and Nonprofit Hospitals," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(3), pages 750-781, October.
    28. Jones, Daniel B., 2015. "The supply and demand of motivated labor: When should we expect to see nonprofit wage gaps?," Labour Economics, Elsevier, vol. 32(C), pages 1-14.
    29. Kevin Murdock, 2002. "Intrinsic Motivation and Optimal Incentive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 650-671, Winter.
    30. Jean-Charles Rochet & Lars A. Stole, 2002. "Nonlinear Pricing with Random Participation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 277-311.
    31. Barigozzi, Francesca & Burani, Nadia & Raggi, Davide, 2018. "Productivity crowding-out in labor markets with motivated workers," Journal of Economic Behavior & Organization, Elsevier, vol. 151(C), pages 199-218.
    32. Richard Disney & Amanda Gosling, 1998. "Does it pay to work in the public sector?," Fiscal Studies, Institute for Fiscal Studies, vol. 19(4), pages 347-374, November.
    33. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
    34. Markus Kitzmueller & Jay Shimshack, 2012. "Economic Perspectives on Corporate Social Responsibility," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 51-84, March.
    35. Handy, Femida & Katz, Eliakim, 1998. "The Wage Differential between Nonprofit Institutions and Corporations: Getting More by Paying Less?," Journal of Comparative Economics, Elsevier, vol. 26(2), pages 246-261, June.
    36. Francesca Barigozzi & Gilberto Turati, 2012. "Human health care and selection effects. Understanding labor supply in the market for nursing," Health Economics, John Wiley & Sons, Ltd., vol. 21(4), pages 477-483, April.
    37. Leete, Laura, 2001. "Whither the Nonprofit Wage Differential? Estimates from the 1990 Census," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 136-170, January.
    38. George J. Borjas & H. E. Frech III & Paul B. Ginsburg, 1983. "Property Rights and Wages: The Case of Nursing Homes," Journal of Human Resources, University of Wisconsin Press, vol. 18(2), pages 231-246.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Barigozzi, Francesca & Burani, Nadia, 2019. "Competition for talent when firms' mission matters," Games and Economic Behavior, Elsevier, vol. 116(C), pages 128-151.
    2. Barigozzi, Francesca & Burani, Nadia, 2016. "Competition and screening with motivated health professionals," Journal of Health Economics, Elsevier, vol. 50(C), pages 358-371.
    3. F. Barigozzi & N. Burani, 2014. "Competition and Screening with Skilled and Motivated Workers," Working Papers wp953, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Nadia Burani, 2021. "No mission? No motivation. On hospitals' organizational form and charity care provision," Health Economics, John Wiley & Sons, Ltd., vol. 30(12), pages 3203-3219, December.
    5. Delfgaauw, Josse & Dur, Robert, 2010. "Managerial talent, motivation, and self-selection into public management," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 654-660, October.
    6. DeVaro, Jed & Maxwell, Nan & Morita, Hodaka, 2016. "Compensation and Intrinsic Motivation in Nonprofit and For-Profit Organizations," CEI Working Paper Series 2015-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    7. Barigozzi, Francesca & Burani, Nadia, 2013. "Intrinsic Motivation in the Labor Market: Not Too Much, Thank You," AICCON Working Papers 124-2013, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
    8. Jones, Daniel B., 2015. "The supply and demand of motivated labor: When should we expect to see nonprofit wage gaps?," Labour Economics, Elsevier, vol. 32(C), pages 1-14.
    9. DeVaro, Jed & Maxwell, Nan & Morita, Hodaka, 2017. "Training and intrinsic motivation in nonprofit and for-profit organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 139(C), pages 196-213.
    10. Michael Vlassopoulos, 2017. "‘Putting a Foot in the Door’: Volunteer Hiring and Organizational Form," Manchester School, University of Manchester, vol. 85(2), pages 133-162, March.
    11. De Chiara, Alessandro & Manna, Ester, 2022. "Firms' ownership, employees’ altruism, and product market competition," Economic Modelling, Elsevier, vol. 109(C).
    12. F. Barigozzi & N. Burani, 2013. "Bidimensional screening with intrinsically motivated workers," Working Papers wp866, Dipartimento Scienze Economiche, Universita' di Bologna.
    13. Barigozzi, Francesca & Raggi, Davide, 2013. "The Lemons Problem in a Labor Market with Intrinsic Motivation," AICCON Working Papers 123-2013, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
    14. Ghatak, Maitreesh & Mueller, Hannes, 2011. "Thanks for nothing? Not-for-profits and motivated agents," Journal of Public Economics, Elsevier, vol. 95(1), pages 94-105.
    15. Patrick Francois, 2007. "Making a difference," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 714-732, September.
    16. Barry T. Hirsch & David A. Macpherson & Anne E. Preston, 2018. "Nonprofit wages: theory and evidence," Chapters, in: Bruce A. Seaman & Dennis R. Young (ed.), Handbook of Research on Nonprofit Economics and Management, chapter 8, pages 146-179, Edward Elgar Publishing.
    17. Ester Manna, 2023. "Bad NGOs? Competition in the market for donations and workers' misconduct," UB School of Economics Working Papers 2023/457, University of Barcelona School of Economics.
    18. Armouti-Hansen, Jesper & Cassar, Lea & Deréky, Anna & Engl, Florian, 2024. "Efficiency wages with motivated agents," Games and Economic Behavior, Elsevier, vol. 145(C), pages 66-83.
    19. Andrew C. Johnston & Carla Johnston, 2021. "Is Compassion a Good Career Move?: Nonprofit Earnings Differentials from Job Changes," Journal of Human Resources, University of Wisconsin Press, vol. 56(4), pages 1226-1253.
    20. Makris, Miltiadis, 2009. "Incentives for motivated agents under an administrative constraint," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 428-440, August.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M55 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Contracting Devices

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bol:bodewp:wp1072. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dipartimento Scienze Economiche, Universita' di Bologna (email available below). General contact details of provider: https://edirc.repec.org/data/sebolit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.