Incentivizing Innovation Under Ambiguity: The Role for Intrinsic Incentives and Corporate Identity
50 Pages Posted: 1 Oct 2017
Date Written: August 8, 2017
This paper examines the role of intrinsic incentives and corporate identity in motivating innovation. We show that when innovation is ambiguous, the use of extrinsic, high-powered incentives can deter innovation when it is not complemented with strong intrinsic incentives --- the degree of self-motivation, and the extent to which the agent identifies with firm's goals and mission. The paper predicts that extrinsic and intrinsic incentives are not simple substitutes, but play a complementary role in motivating innovation, which explains why many innovative companies that provide generous extrinsic incentives also invest heavily in fostering corporate culture.
Keywords: ambiguity, uncertainty, intrinsic incentives, innovation, corporate identity, corporate culture, compensation
JEL Classification: D86, G30, O32, M14
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