Crowding Effects and Work Ethics

Sverre Grepperud and Pål Andreas Pedersen

LABOUR, 2006, vol. 20, issue 1, 125-138

Abstract: Abstract. This paper analyses optimal contracts in a principal–agent model where the agent is intrinsically motivated, 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 make better achievements without implementing any economic incentives. Furthermore, it is shown that when high‐powered incentives reduce intrinsic motivation (crowding‐out), the first‐best solution in a principal–agent framework is unattainable.

Date: 2006
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https://doi.org/10.1111/j.1467-9914.2006.00315.x

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