Efficiency Wages with Motivated Agents
Lea Cassar () and
No 8474, CESifo Working Paper Series from CESifo
Many organizations nowadays combine profits with a social mission. This paper reveals a new hidden benefit of the mission: its role in facilitating the emergence of efficiency wages. We show that in a standard gift exchange principals highly underestimate agents’ reciprocity and thereby offer wages that are much lower than the profit-maximizing level. This bias has a high social cost: if principals had correct beliefs and thus offered the profit-maximizing wage, efficiency would increase by 86 percent. However, the presence of a social mission (in the form of a positive externality generated by the agent’s effort), by increasing principals’ trust, acts as a debiasing mechanism. Thereby efficiency is increased by 50 percent. These results contribute to our understanding of behavior in mission-oriented organizations and to the debate about the relevance of reciprocity in the workplace and open new questions about belief formation in prosocial contexts.
Keywords: mission motivation; gift exchange; biased beliefs; efficiency wages (search for similar items in EconPapers)
JEL-codes: D23 M52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-hrm and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8474
Access Statistics for this paper
More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().