The RAND Journal of Economics · 2002 · 36 citations · 0 references
BusinessBusiness EconomicsEconomicsAgency TheoryContract TheoryMicroeconomicsContract DesignExtrinsic MotivationIncentive SchemesIntrinsic MotivationOptimal ContractingPrincipal-agent TheoryAgent Effort ProvisionIncentive ProvisionIncentive-based ContractingOptimal Incentive Contracts
Agents pursue projects that generate both financial returns and intrinsic value, yet in neutral settings where intrinsic motivation does not affect effort costs, static contracts remain unchanged by intrinsic motivation. The study examines how intrinsic motivation influences the design of optimal incentive contracts. The analysis shows that implicit contracts yield higher firm profits as agents become more intrinsically motivated, indicating a complementarity, and it extends to multiple implicit contracts and product market strategy.
I study the role of intrinsic motivation on optimal incentive contracts. Agents engage in efforts to generate projects with both financial return and intrinsic value to the agent. In a neutral environment, where intrinsic motivation has no direct effect on the disutility of effort, static contracts are unaffected by intrinsic motivation. In contrast, the firm's profits from an implicit contract are increasing in the degree to which the agent is intrinsically motivated, showing that implicit contracts and intrinsic motivation are complements. The results are further extended to consider the role of multiple implicit contracts and product market strategy.