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Intinsically Motivated Agents: Blessing or Curse for Firms ?

  • Ester Manna

I investigate whether the presence of intrinsically motivated agents benefits firms in a competitiveenvironment. I find that firms may obtain higher profits by hiring self-interested agents than byhiring motivated agents. This is because the agents’ intrinsic motivation has counteracting effectson the profits obtained by the firms. On the one hand, motivation has a positive impact on theprofits due to a reduction of wages. Motivated employees provide a given level of quality for a lowerwage. On the other hand, motivation has a negative impact on each firm’s profits. The agents’intrinsic motivation has a positive impact on the quality offered by the firms. With higher quality,the degree of differentiation of the products is relatively less important, increasing competition andreducing prices. Firms find themselves trapped in a prisoner’s dilemma in which the strategy ofhiring self-interested agents is strictly dominated by that of hiring motivated agents. Hence, thevery presence of motivated agents may hurt firms.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2013-37.

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Length: 24 p.
Date of creation: Oct 2013
Date of revision:
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/149507
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  1. David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring.
  2. Besley, Timothy J. & Ghatak, Maitreesh, 2004. "Competition and Incentives with Motivated Agents," CEPR Discussion Papers 4641, C.E.P.R. Discussion Papers.
  3. Benabou, Roland & Tirole, Jean, 2005. "Incentives and Prosocial Behavior," IZA Discussion Papers 1695, Institute for the Study of Labor (IZA).
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  5. Canice Prendergast, 2007. "The Motivation and Bias of Bureaucrats," American Economic Review, American Economic Association, vol. 97(1), pages 180-196, March.
  6. Josse Delfgaauw & Robert Dur, 2003. "Signaling and Screening of Workers' motivation," CESifo Working Paper Series 1099, CESifo Group Munich.
  7. Ghatak, Maitreesh & Mueller, Hannes Felix, 2010. "Thanks for Nothing? Not-for-Profits and Motivated Agents," CEPR Discussion Papers 7663, C.E.P.R. Discussion Papers.
  8. Avinash Dixit, 2002. "# Incentives and Organizations in the Public Sector: An Interpretative Review," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 696-727.
  9. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
  10. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  11. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
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