Competition and Screening with Skilled and Motivated Workers
Quaderni - Working Paper DSE N° 953
43 Pages Posted: 10 Jul 2014 Last revised: 12 Sep 2014
Date Written: June 30, 2014
We study optimal contracts offered by two firms competing for the exclusive services of one worker, who is privately informed about her ability and her motivation. Firms differ both in their production technology and in the mission they pursue and a motivated worker is keen to be hired by the missionoriented firm. We find that the matching of worker types to firms is always Pareto-efficient. When the difference in firms’ technology is high, only the most efficient firm is active. When the difference is not very high, then agent types sort themselves by motivation: the mission-oriented firm hires motivated types and the profit-oriented firm employs non-motivated ones, independently of ability. Effort provision is higher when the worker is hired by the mission-oriented firm, but a compensating wage differential might exist: the motivated worker is paid less by the mission-oriented firm. Such an earnings penalty is driven entirely by motivation, is increasing in ability and is associated to low power of incentives.
Keywords: vocational labor market, multi-principals, bidimensional screening, intrinsic motivation, skills
JEL Classification: D82, D86, J31, M55
Suggested Citation: Suggested Citation