Making A Difference

Patrick Francois ()

No 5158, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Despite the potential for free-riding, workers motivated by ?making a difference? to the mission or output of an establishment may donate labour to it. When the establishment uses performance related compensation (PRC), these labour donations closely resemble a standard private provision of public goods problem, and are not rational in large labour pools. Without PRC, however, the problem differs significantly from a standard private provision of public goods situation. Specifically, in equilibrium: there need not be free-riding, decisions are non-monotonic in valuations, and contribution incentives are significant even in large populations. When PRC is not used, the establishment tends to favour setting low wages which help to select a labour force driven by concern for the firm?s output. Expected output can actually fall with the wage in this situation. For sufficiently high levels of risk aversion, performance related pay can yield less expected output than when compensation is output independent.

Keywords: Privately provided public goods; Voluntarism; Incentive schemes; Public sector employment (search for similar items in EconPapers)
JEL-codes: H11 H41 H83 J45 (search for similar items in EconPapers)
Date: 2005-07
New Economics Papers: this item is included in nep-evo, nep-lab, nep-pbe and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Making a difference (2007)
Working Paper: Making A Difference (2005)
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