Optimal Contracting with Endogenous Project Mission
40 Pages Posted: 31 Jul 2016
Date Written: February 1, 2016
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: Suggested Citation