The Effect of External Incentives on Profits and Firm-Provided Incentives Strategy

Ofer H. Azar ()

MPRA Paper from University Library of Munich, Germany

Abstract: The article examines the firm's choice of incentives when workers face additional incentives (“external incentives”) to those provided by the firm, such as building reputation that improves the workers' prospects with other employers, or satisfaction from working well. Surprisingly, the firm might find it optimal to increase the incentives it provides following an increase in external incentives. Even if the firm reduces its incentives, however, total incentives unambiguously increase, leading to higher effort and profits. This implies that firms should try to increase the external incentives that their workers face; I suggest several ways firms can do so.

Keywords: Worker satisfaction; Personnel economics; External incentives; Worker reputation; Intrinsic motivation (search for similar items in EconPapers)
JEL-codes: D21 L20 J30 M52 M20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-cbe
Date: 2003, Revised 2007
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Related works:
Journal Article: The effect of external incentives on profits and firm-provided incentives strategy (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:4456

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