 Positive self-image and incentives in organizationsNova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics Abstract: This paper investigates the implications of individuals mistaken beliefs of their abilities on incentives in organizations using the principal-agent model of moral hazard. The paper shows that if effort is observable, then an agent s mistaken beliefs about own ability are always favorable to the principal. However, if effort is unobservable, then an agent s mistaken beliefs about own ability can be either favorable or unfavorable to the principal. The paper provides conditions under which an agent s over estimation about own ability is favorable to the principal when effort is unobservable. Finally, the paper shows that workers mistaken beliefs about their coworkers abilities make interdependent incentive schemes more attractive to firms than individualistic incentive schemes. Keywords: Positive self-image; incentives; moral hazard; behavioral economics (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp509 Access Statistics for this paper More papers in Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics Contact information at EDIRC. |
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