Efficiency Wages with Motivated Agents

Jesper Armouti-Hansen, Lea Cassar () and Anna Deréky

No 8474, CESifo Working Paper Series from CESifo

Abstract: Many jobs are connected to a prosocial mission, i.e., they have a positive impact on society beyond profit-maximization. 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. However, the presence of a social mission (in the form of a positive externality generated by the agent’s effort), by increasing principals’ trust in the agents’ effort responses, acts as a debiasing mechanism and thereby increases efficiency substantially.

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)
Date: 2020
New Economics Papers: this item is included in nep-cbe, nep-hrm and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8474

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