Incentives in Agency Relationships: To Be Monetary or Non-Monetary?

Patricia Crifo and Marc-Arthur Diaye ()
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Marc-Arthur Diaye: Université d’Evry Val d’Essonne (EPEE)

No 04-09, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: In this paper, we develop a Principal-Agent model with both monetary and non-monetary incentives. We show that the latter are always more efficient, that is Pareto-dominate, monetary incentives. Indeed, we not only show that all what monetary incentives can do, non-monetary incentives can do it as well, we go further and show the possibility for non-monetary incentives to increase intrinsic motivation, thereby compensating the fact that higher rewards, rather than being encouraging can reduce the motivation to provide effort. However, from a practical point of view, implementing such a scheme within firms requires that the Principal knows the intrinsic value system of the Agent which, as a by-product, gives rise to specific and interesting issues.

Keywords: Agency Relationships; Non-Monetary Incentives; Motivation Crowding Effect (search for similar items in EconPapers)
JEL-codes: D61 D82 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2004
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