Managing Employees 'Insides' to Remedy Agency Problems? A Model of Transformational Leadership

Jocelyn Donze () and Olivier Simard-Casanova

MPRA Paper from University Library of Munich, Germany

Abstract: We consider a leader who can choose between a transactional or a transformational style of leadership to motivate a team of followers, in presence of moral hazard and free riding. Transformational leadership extends transactional leadership by allowing the leader to deliver a motivational message in addition to standard monetary incentives. When followers adhere to the leader's message, they get more motivated and exert more effort. We show that there is a complementary between monetary incentives and the motivational message. Furthermore followers are better off under transformational leadership. We also show that when the team size increases, transformational leadership - even if it comes at a fixed implementation cost - becomes less and less profitable for the leader compared to transactional leadership, at least when the size increase does not reinforce too much the social incentives to adhere to the leader's vision. When the size increase makes social incentives sufficiently stronger, transformational leadership regains interest and can even remedy the free-riding and moral hazard problems. Our results are in line with the empirical literature on leadership.

Keywords: leadership; teams; agency problems; incentives; motivational message. (search for similar items in EconPapers)
JEL-codes: D2 D8 D9 M5 (search for similar items in EconPapers)
Date: 2018-06-13
New Economics Papers: this item is included in nep-cdm and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/94459/1/MPRA_paper_94459.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94459

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().