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Optimal Contracting with Endogenous Project Mission

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  • Lea Cassar

Abstract

I analyze a model in which a principal offers a contract to an agent and can influence the agent’s marginal return of effort by the choice of the project mission. The principal’s and the agents’ mission preferences are misaligned, and the agents have unobservable intrinsic motivation levels. I show that the non-contractibility of effort (asymmetric information) brings the mission closer to the agent’s (principal’s) preferences. Furthermore, when effort is non-contractible, the optimal mechanism i) has a “double distortion”' in the mission; ii) does not exclude low-types agents; and iii) can be implemented through a scoring auction. Several applications are discussed.

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  • Lea Cassar, 2016. "Optimal Contracting with Endogenous Project Mission," CESifo Working Paper Series 6181, CESifo.
    • Handle: RePEc:ces:ceswps:_6181
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    Cited by:

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    2. Lea Cassar, 2019. "Job Mission as a Substitute for Monetary Incentives: Benefits and Limits," Management Science, INFORMS, vol. 65(2), pages 896-912, February.
    3. Dur, Robert & van Lent, Max, 2018. "Serving the public interest in several ways: Theory and empirics," Labour Economics, Elsevier, vol. 51(C), pages 13-24.
    4. Englmaier, Florian & Schüßler, Katharina, 2015. "Complementarities of HRM Practices," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 503, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    5. Weinschenk, Philipp, 2019. "Contract Design with Socially-Attentive Preferences," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203546, Verein für Socialpolitik / German Economic Association.
    6. Barigozzi, Francesca & Manna, Ester, 2020. "Envy in mission-oriented organisations," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 395-424.
    7. Florian Englmaier & Katharina Schüßler, 2015. "Complementarities of HRM Practices - A Case for Employing Multiple Methods and Integrating Multiple Fields," CESifo Working Paper Series 5249, CESifo.
    8. Bigoni, Maria & Ploner, Matteo & Vu, Thi-Thanh-Tam, 2023. "The right person for the right job: workers’ prosociality as a screening device," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 53-73.
    9. Lea Cassar, 2014. "Job mission as a substitute for monetary incentives: experimental evidence," ECON - Working Papers 177, Department of Economics - University of Zurich.
    10. Jesper Armouti-Hansen & Lea Cassar & Anna Deréky & Florian Engl, 2020. "Efficiency Wages with Motivated Agents," CESifo Working Paper Series 8474, CESifo.

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    More about this item

    Keywords

    optimal contracting; non-monetary incentives; mission preferences; intrinsic motivation;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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