Purpose, profit and social pressure

Fenghua Song, Anjan Thakor and Robert Quinn

Journal of Financial Intermediation, 2023, vol. 55, issue C

Abstract: We develop a model in which there are firms and employees who care about profit-sacrificing higher purpose (HP) and those who do not. Firms and employees search for each other in the labor market. Each firm chooses its HP investment. When there is no social pressure on firms to adopt a purpose, HP dissipates agency frictions, lowers wage costs, yet elicits higher employee effort in firms that intrinsically value the purpose. However, social pressure to invest in HP can distort the HP investments of all firms and reduce welfare by making all agents worse off. Applications of these results to banking are discussed.

Keywords: Higher purpose, Incentives, Labor market matching, Organizational performance (search for similar items in EconPapers)
JEL-codes: D02 D21 D23 D64 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:55:y:2023:i:c:s1042957323000141

DOI: 10.1016/j.jfi.2023.101031

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