The Firm as an Intrinsic Motivation Device

37 Pages Posted: 6 Aug 2008 Last revised: 13 May 2014

See all articles by Abhijit Ramalingam

Abhijit Ramalingam

Appalachian State University

Michael T. Rauh

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: June 11, 2009

Abstract

In this paper, we develop a new theory of the firm where the market is primarily an incentive system whereas the firm is an intrinsic motivation device. The firm is more efficient than the market when asset specificity and subjective risk are sufficiently high because it provides balanced incentives, fosters intrinsic motivation, and economizes on risk. An efficient firm is unambiguously the more ethical institution in the sense that the component of production effort due to intrinsic motivation and the agent's rents in exchange for commitment are higher. The exception is when the market approximates the first best.

Keywords: authority, endogenous preferences, incentives, intrinsic motivation, markets, multi-tasking, relational contracts, theory of the firm

JEL Classification: M14, M52, L14, D86, D02

Suggested Citation

Ramalingam, Abhijit and Rauh, Michael T., The Firm as an Intrinsic Motivation Device (June 11, 2009). Available at SSRN: https://ssrn.com/abstract=1198362 or http://dx.doi.org/10.2139/ssrn.1198362

Abhijit Ramalingam

Appalachian State University ( email )

Boone, NC 28608
United States

HOME PAGE: http://https://sites.google.com/site/abhijitramalingam/

Michael T. Rauh (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

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