Competition between For-Profit and Non-Profit Firms: Incentives, Workers’ Self-Selection, and Wage Differentials

Quaderni - Working Paper DSE N° 1072

55 Pages Posted: 19 Jul 2016

See all articles by Francesca Barigozzi

Francesca Barigozzi

University of Bologna - Department of Economics

Nadia Burani

University of Bologna - School of Economics, Management, and Statistics

Date Written: July 18, 2016

Abstract

We study optimal non-linear contracts offered by two firms competing for the exclusive services of workers, who are privately informed about their ability and motivation. Firms differ in their organizational form, and motivated workers are keen to be hired by the non-profit firm because they adhere to its mission. If the for-profit firm has a competitive advantage over the non-profit firm, the latter attracts fewer high-ability workers with respect to the former. Moreover, workers exert more effort at the for-profit than at the non-profit firm despite the latter distorts effort levels upwards. Finally, a wage penalty emerges for non-profit workers which is partly due to compensating effects (labor donations by motivated workers) and partly due to the negative selection of ability into the non-profit firm. The opposite results hold when it is the non-profit firm that has a competitive advantage.

Keywords: non-profi…t fi…rms, multi-principals, intrinsic motivation, skills, bidimensional adverse selection, wage differential

JEL Classification: D82, D86, J24, J31, M55

Suggested Citation

Barigozzi, Francesca and Burani, Nadia, Competition between For-Profit and Non-Profit Firms: Incentives, Workers’ Self-Selection, and Wage Differentials (July 18, 2016). Quaderni - Working Paper DSE N° 1072, Available at SSRN: https://ssrn.com/abstract=2811114 or http://dx.doi.org/10.2139/ssrn.2811114

Francesca Barigozzi (Contact Author)

University of Bologna - Department of Economics ( email )

P.zza Scaravilli 2
40126 Bologna, 40126
Italy

Nadia Burani

University of Bologna - School of Economics, Management, and Statistics ( email )

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