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Team Incentives and Organizational Form

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Abstract

Conventional wisdom regarding nonprofit firms is that they are inefficient, due to the absence of a profit motive. However, the costs and product quality realized by profit-taking firms is determined by how well those firms deal with a host of internal incentive and information issues. A similar approach to the study of nonprofit organizations has not been attempted. This paper undertakes such an investigation, centered on the problem of providing incentives for members of a team to provide efficient effort. Holmstrom(1982) showed that the introduction of a budget-breaker, or principal, into a team allowed for the provision of such incentives where it would otherwise be impossible. A similar result obtains for a nonprofit team, but the role of principal differs from that found in profit-taking teams. It is shown that any of; donors, government regulators, or Trustees can fulfill this role in a nonprofit team. One implication of this is that nonprofit firms may indeed pay employees less than otherwise identical employees filling identical posts in profit-taking firms.

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  • Al Slivinski, 1999. "Team Incentives and Organizational Form," UWO Department of Economics Working Papers 9916, University of Western Ontario, Department of Economics.
  • Handle: RePEc:uwo:uwowop:9916
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    Cited by:

    1. Kirstein, Roland, 2003. "Imperfect Monitoring of Monitoring Agents: One Reason Why Hierarchies Can Be Superior to "Lean" Organizations," CSLE Discussion Paper Series 2003-07, Saarland University, CSLE - Center for the Study of Law and Economics.
    2. Patricia Crifo & Jean-Louis Rullière, 2004. "Incentives and Anonymity Principle: Crowding Out Toward Users," CESifo Working Paper Series 1316, CESifo Group Munich.

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