Firms, Markets, and the Work Ethic

Abhijit Ramalingam () and Michael T. Rauh ()

No 2008-04, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: In this paper, we develop a new theory of the firm where the market is primarily an incentive system whereas the firm is an intrinsic motivation device. The firm is more efficient than the market when asset specificity and subjective risk are sufficiently high because it provides balanced incentives, fosters intrinsic motivation, and economizes on risk. An efficient firm is unambiguously the more ethical institution in the sense that the component of production effort due to intrinsic motivation and the agent's rents in exchange for commitment are higher. The exception is when the market approximates the first best.

Keywords: authority; conscientiousness; incentives; markets; multi-tasking; ownership; theory of the firm; work ethic (search for similar items in EconPapers)
JEL-codes: M14 M52 L14 D86 D02 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec
Date: 2008-08
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