Optimal Contracting with Endogenous Project Mission

40 Pages Posted: 31 Jul 2016

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2016

Abstract

Empirical evidence shows that workers care about the mission of their job in addition to their wage. This suggests that employers can use the job mission to incentivize and screen their workers. I analyze a model in which a principal selects one agent to develop a project and influences the agent’s effort not by outcome-contingent rewards, but by the choice of the project mission. The principal’s and the agents’ preferences about the mission are misaligned and the degree to which an agent cares about the mission is private information. I show that the optimal mechanism i) does not exclude any agent from the competition, ii) distorts the project mission towards the principal’s preferences, iii) brings the project mission closer to the agents’ preferences as the number of agents increases. On the contrary, in the presence of budget constraints, it is not optimal for the principal to screen the agent.

Keywords: optimal contracting, non-monetary incentives, mission preferences, intrinsic motivation

JEL Classification: H41, D23, D82, M52

Suggested Citation

Cassar, Lea, Optimal Contracting with Endogenous Project Mission (February 1, 2016). Available at SSRN: https://ssrn.com/abstract=2815641 or http://dx.doi.org/10.2139/ssrn.2815641

Lea Cassar (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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