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The Crowding-out of Work Ethics

Author

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  • Sverre Grepperud
  • Pål Andreas Pedersen

    ()

Abstract

This paper analyses optimal contracts in a principal-agent model where the agent is intrinsically motivated at the outset and there is an endogenous relationship between the structure of incentive payments and intrinsic motivation (crowding effects). The analysis shows that crowding effects have implications for the optimal contract and that under some conditions the principal can do better without implementing any economic incentives. Furthermore, it is shown that when high-powered incentives diminish intrinsic motivation (crowding-out) the first-best solution in a principal-agent framework is unattainable.

Suggested Citation

  • Sverre Grepperud & Pål Andreas Pedersen, 2001. "The Crowding-out of Work Ethics," Studies in Economics 0102, School of Economics, University of Kent.
  • Handle: RePEc:ukc:ukcedp:0102
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    File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/0102.pdf
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    References listed on IDEAS

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    2. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
    3. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
    4. Frey, Bruno S & Oberholzer-Gee, Felix, 1997. "The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out," American Economic Review, American Economic Association, vol. 87(4), pages 746-755, September.
    5. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
    6. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    7. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    8. Kreps, David M, 1997. "Intrinsic Motivation and Extrinsic Incentives," American Economic Review, American Economic Association, vol. 87(2), pages 359-364, May.
    9. Frey, Bruno S., 1993. "Motivation as a limit to pricing," Journal of Economic Psychology, Elsevier, vol. 14(4), pages 635-664, December.
    10. James J. Heckman & Jeffrey A. Smith & Christopher Taber, 1996. "What Do Bureaucrats Do? The Effects of Performance Standards and Bureaucratic Preferences on Acceptance into the JTPA Program," NBER Working Papers 5535, National Bureau of Economic Research, Inc.
    11. Baron, James N., 1988. "The employment relation as a social relation," Journal of the Japanese and International Economies, Elsevier, vol. 2(4), pages 492-525, December.
    12. Frey, Bruno S, 1997. "A Constitution for Knaves Crowds Out Civic Virtues," Economic Journal, Royal Economic Society, vol. 107(443), pages 1043-1053, July.
    13. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    14. Barkema, Harry G, 1995. "Do Top Managers Work Harder When They Are Monitored?," Kyklos, Wiley Blackwell, vol. 48(1), pages 19-42.
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    1. repec:pal:eurjdr:v:29:y:2017:i:4:d:10.1057_s41287-016-0067-y is not listed on IDEAS
    2. repec:wsi:serxxx:v:51:y:2006:i:03:n:s0217590806002433 is not listed on IDEAS
    3. repec:wsi:acsxxx:v:13:y:2010:i:03:n:s0219525910002591 is not listed on IDEAS

    More about this item

    Keywords

    Agency theory; intrinsic motivation; crowding effects;

    JEL classification:

    • L0 - Industrial Organization - - General
    • J0 - Labor and Demographic Economics - - General
    • D2 - Microeconomics - - Production and Organizations

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