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Incentives Beyond the Money: Identity and Motivational Capital in Public Organizations

This paper explores optimality of contracts and incentives when the principal (public organisation) can undertake investments to change agents’ (public workers) identity. In the model, workers within the organisation can have different identities. We develop a principal-agent dynamical model with moral hazard, which captures the possibility of affecting this workers’ identity through contracts offered by the firm. In the model, identity is a motivation source which reduces agents’ isutility from effort. We use the term identity to refer to a situation in which the worker shares the organisational objectives and views herself as a part of the organisation. Contrary, we use the term conflict to refer to a ituation in which workers behave self-interested and frequently in the opposite way of the organisation. We assume that identity can be achieved when principal include mission-sense developing investments in contracts. By mission we mean a single culture that is shared by all the members of an organization. We discuss the conditions under which spending resources in changing workers’ identity and invest in this kind of motivational capital is optimal for organisations. Our results may help to inform public firms’ managers about the optimal design of incentive schemes and policies. For instance, we conclude that investing in motivational capital is the best option in the long run whereas pure monetary incentives works better in the short run.

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Paper provided by Departamento de Economía - Universidad Pública de Navarra in its series Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra with number 1214.

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Date of creation: 2012
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Publication status: Published in
Handle: RePEc:nav:ecupna:1214
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  1. Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 1999. "The Economics of Career Concerns, Part I: Comparing Information Structures," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 183-98, January.
  2. Denis Gromb, 2007. "Cultural Inertia and Uniformity in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(3), pages 743-771, October.
  3. Tirole, J., 1993. "A Theory of Collective Reputations with Applications to the Persistence of Corruption and to Firm Quality," Working papers 93-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Josse Delfgaauw & Robert Dur, 2008. "Incentives and Workers' Motivation in the Public Sector," Economic Journal, Royal Economic Society, vol. 118(525), pages 171-191, 01.
  5. 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.
  6. Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 1999. "The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 199-217, January.
  7. Carrillo, Juan D. & Gromb, Denis, 1999. "On the strength of corporate cultures," European Economic Review, Elsevier, vol. 43(4-6), pages 1021-1037, April.
  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. Sen, Amartya, 1985. "Goals, Commitment, and Identity," Journal of Law, Economics and Organization, Oxford University Press, vol. 1(2), pages 341-55, Fall.
  10. Rafael Rob & Peter Zemsky, 2002. "Social Capital, Corporate Culture, and Incentive Intensity," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 243-257, Summer.
  11. George A. Akerlof & Rachel E. Kranton, 2005. "Identity and the Economics of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 9-32, Winter.
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