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Charity, incentives, and performance

Oege Dijk and Martin Holmen

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2017, vol. 66, issue C, 119-128

Abstract: We propose that donating profits to charity may improve firm performance through reduced moral hazard and increased effort in incomplete contract environments. This proposition is tested and confirmed in an incomplete contract principal-agent laboratory experiment where principals’ profits are donated to charity. The results show that both principals and agents have higher earnings in treatments where principals are working on behalf of a charity. Only in the charity treatments do agents respond positively to the effort levels suggested by the principals, and do higher requested levels of effort result in higher principal earnings.

Keywords: Charity; Incomplete contracts; Experiments (search for similar items in EconPapers)
JEL-codes: D01 L33 M52 (search for similar items in EconPapers)
Date: 2017
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