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Signaling and Screening of Workers' Motivation
TL;DR: In this article, the authors examine the implications of workers' intrinsic motivation for optimal monetary incentive schemes and show that motivated workers work harder and, for a given level of effort, are willing to work for a lower wage.
Abstract: This paper develops a model in which workers to a certain extent enjoy working. We examine the implications of workers' intrinsic motivation for optimal monetary incentive schemes. We show that motivated workers work harder and, for a given level of effort, are willing to work for a lower wage. When people differ in their motivation to work at a particular firm, the profits of the firm depend on its capability to attract and select highly motivated workers. We show that when the firm has all the bargaining power and workers face application cost, the firm needs to commit to a minimum wage offer in order to attract workers. A higher minimum wage increases the probability to fill the vacancy, but decreases the expected average quality of job applicants, as it induces lower motivated workers to apply. The optimal level of the minimum wage depends on whether or not the firm can observe the motivation of the applicants. If applicants can credibly signal their motivation, a minimum wage not only helps to attract workers, but also to select the best-motivated worker among the job applicants.
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TL;DR: The authors show that performance incentives offered by an informed principal can adversely affect an agent's perception of the task, or of his own abilities, and also study the effects of empowerment, help and excuses on motivation, as well as situations of ego bashing reflecting a battle for dominance within a relationship.
Abstract: A central tenet of economics is that individuals respond to incentives. For psychologists and sociologists, in contrast, rewards and punishments are often counterproductive, because they undermine "intrinsic motivation". We reconcile these two views, showing how performance incentives offered by an informed principal (manager, teacher, parent) can adversely impact an agent's (worker, child) perception of the task, or of his own abilities. Incentives are then only weak reinforcers in the short run, and negative reinforcers in the long run. We also study the effects of empowerment, help and excuses on motivation, as well as situations of ego bashing reflecting a battle for dominance within a relationship.
3,060 citations
TL;DR: The authors assess subsequent studies in public administration and in social and behavioral sciences as well as evolving definitions of public service motivation, and chart new directions for public-service motivation scholarship to help clarify current research questions, advance comparative research, and enhance our overall understanding of individuals' public service motives.
Abstract: How has research regarding public service motivation evolved since James L. Perry and Lois Recascino Wise published their essay “The Motivational Bases of Public Service” 20 years ago? The authors assess subsequent studies in public administration and in social and behavioral sciences as well as evolving definitions of public service motivation. What have we learned about public service motivation during the last two decades? What gaps in our understanding and knowledge have appeared with respect to the three propositions offered by Perry and Wise? This essay charts new directions for public service motivation scholarship to help clarify current research questions, advance comparative research, and enhance our overall understanding of individuals’ public service motives.
753 citations
Posted Content•
TL;DR: This paper performed an empirical investigation of the macroeconomic consequences of international terrorism and interactions with alternative forms of collective violence and found that on average, the incidence of terrorism may have an economically significant negative effect on growth, albeit one that is considerably smaller and less persistent than that associated with either external wars or internal conflict.
Abstract: We perform an empirical investigation of the macroeconomic consequences of international terrorism and interactions with alternative forms of collective violence. Our analysis is based on a rich unbalanced panel data set with annual observations on 177 countries from 1968 to 2000, which brings together information from the Penn World Table dataset, the ITERATE dataset for terrorist events, and datasets of external and internal conflict. We explore these data with cross-sectional and panel growth regression analysis and a structural VAR model. We find that, on average, the incidence of terrorism may have an economically significant negative effect on growth, albeit one that is considerably smaller and less persistent than that associated with either external wars or internal conflict. As well, terrorism is associated with a redirection of economic activity away from investment spending and towards government spending. However, our investigation also suggests important differences both regarding the incidence and the economic consequences of terrorism among different sets of countries. In OECD economies, in particular, terrorist incidents are considerably more frequent than in other nations, but the negative influence of these incidents on growth is smaller.
523 citations
TL;DR: In this article, the authors explore how individual-level phenomena underpin isolating mechanisms that sustain human capital-based advantages but also create management dilemmas that must be resolved in order to create value.
463 citations
Cites background from "Signaling and Screening of Workers'..."
...Firms often rely on crude signals, such as educational level, even though wide variations in productivity remain (Delfgaauw & Dur, 2007; Spence, 1973)....
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TL;DR: This paper performed an empirical investigation of the macroeconomic consequences of international terrorism and interactions with alternative forms of collective violence and found that on average, the incidence of terrorism may have an economically significant negative effect on growth, albeit one that is considerably smaller and less persistent than that associated with either external wars or internal conflict.
337 citations
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TL;DR: In this paper, the authors present a struggling attempt to give structure to the statement: "Business in under-developed countries is difficult"; in particular, a structure is given for determining the economic costs of dishonesty.
Abstract: This paper relates quality and uncertainty. The existence of goods of many grades poses interesting and important problems for the theory of markets. On the one hand, the interaction of quality differences and uncertainty may explain important institutions of the labor market. On the other hand, this paper presents a struggling attempt to give structure to the statement: “Business in under-developed countries is difficult”; in particular, a structure is given for determining the economic costs of dishonesty. Additional applications of the theory include comments on the structure of money markets, on the notion of “insurability,” on the liquidity of durables, and on brand-name goods.
17,764 citations
"Signaling and Screening of Workers'..." refers background in this paper
...The workers optimal amount of e¤ort is found by maximising the utility function (1) to e:...
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...We will show that in all of these cases, it is optimal for the rm to commit to a minimum wage o¤er, either because commitment resolves the Diamond paradox (Diamond, 1971) or because it avoids a lemons problem (Akerlof, 1970)....
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TL;DR: In this paper, the authors present a model in which signaling is implicitly defined and explains its usefulness, in which the employer is not sure of the productive capabilities of an individual at the time he/she hires him.
Abstract: Publisher Summary This chapter discusses job market signaling. The term market signaling is not exactly a part of the well-defined, technical vocabulary of the economist. The chapter presents a model in which signaling is implicitly defined and explains its usefulness. In most job markets, the employer is not sure of the productive capabilities of an individual at the time he hires him. The fact that it takes time to learn an individual's productive capabilities means that hiring is an investment decision. On the basis of previous experience in the market, the employer has conditional probability assessments over productive capacity with various combinations of signals and indices. This chapter presents an introduction to Spence's more extensive analysis of market signaling.
12,195 citations
"Signaling and Screening of Workers'..." refers background in this paper
...A seminal paper in this eld is Spence (1973), and a recent survey of the literature is Riley (2001)....
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TL;DR: In this article, a principal-agent model that can explain why employment is sometimes superior to independent contracting even when there are no productive advantages to specific physical or human capital and no financial market imperfections to limit the agent's borrowings is presented.
Abstract: Introduction In the standard economic treatment of the principal–agent problem, compensation systems serve the dual function of allocating risks and rewarding productive work. A tension between these two functions arises when the agent is risk averse, for providing the agent with effective work incentives often forces him to bear unwanted risk. Existing formal models that have analyzed this tension, however, have produced only limited results. It remains a puzzle for this theory that employment contracts so often specify fixed wages and more generally that incentives within firms appear to be so muted, especially compared to those of the market. Also, the models have remained too intractable to effectively address broader organizational issues such as asset ownership, job design, and allocation of authority. In this article, we will analyze a principal–agent model that (i) can account for paying fixed wages even when good, objective output measures are available and agents are highly responsive to incentive pay; (ii) can make recommendations and predictions about ownership patterns even when contracts can take full account of all observable variables and court enforcement is perfect; (iii) can explain why employment is sometimes superior to independent contracting even when there are no productive advantages to specific physical or human capital and no financial market imperfections to limit the agent's borrowings; (iv) can explain bureaucratic constraints; and (v) can shed light on how tasks get allocated to different jobs.
5,678 citations
"Signaling and Screening of Workers'..." refers background in this paper
...In case of multiple tasks, monetary incentives may crowd out facets of tasks which are hard to observe by facets of tasks which are more easily observed (Holmström and Milgrom, 1991)....
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TL;DR: Vroom et al. as mentioned in this paper investigated the effects of external rewards on intrinsic motivation to perform an activity and found that when money was used as an external reward, intrinsic motivation tended to decrease, whereas when verbal reinforcement and positive feedback were used to increase.
Abstract: Two laboratory experiments and one field experiment were conducted to investigate the effects of external rewards on intrinsic motivation to perform an activity. In each experiment, subjects were performing an activity during three different periods, and observations relevant to their motivation were made. External rewards were given to the experimental subjects during the second period only, while the control subjects received no rewards. Of interest was the difference in the experimental group's motivation between Period 1 and Period 3, relative to the difference in the control's. The results indicate that (a) when money was used as an external reward, intrinsic motivation tended to decrease, whereas (b) when verbal reinforcement and positive feedback were used, intrinsic motivation tended to increase. Discrepant findings in the literature were reconciled using a new theoretical framework which employs a cognitive approach and concentrates on the nature of the external reward. If a boy who enjoys mowing lawns begins to receive payment for the task, what will happen to his intrinsic motivation for performing this activity? Or, if he enjoys gardening and his parents seek to encourage this by providing verbal reinforcement and affection when he gardens, what will happen to his intrinsic motivation for gardening? These are examples of the classical problem concerning the effects of external rewards on intrinsic motivation. One is said to be intrinsically motivated to perform an activity when he receives no apparent rewards except the activity itself. This intrinsic motivation might be either innate or learned (White, 1959). It is not the purpose of this study to deal with the specific nature of, or development of, intrinsic motivation, but rather, it assumes that at a given time a person can be intrinsically motivated to do an activity, and it then asks: What are the effects of external rewards on this motivation ? In the two examples of the boy, he is performing the activity for no apparent rewards 1 These studies were conducted at Carnegie-Mell on University. The author wishes to thank Victor H. Vroom and Daryl J. Bern for helpful suggestions about the research and about earlier drafts of the manuscript.
3,878 citations
"Signaling and Screening of Workers'..." refers background in this paper
...where p( ) is the probability of getting the job for a worker of type , given by (13) in case of observable motivation and by (A8) in case of unobservable motivation, respectively....
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...Intrinsic motivation is considered to be of major importance for human behaviour (see e.g. DeCharms, 1968, Deci, 1971, and Furnham, 1990)....
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TL;DR: In this paper, the authors present a number of formal restrictions of this sort, investigate their behavior in specific examples, and relate these restrictions to Kohlberg and Mertens' notion of stability.
Abstract: Games in which one party conveys private information to a second through messages typically admit large numbers of sequential equilibria, as the second party may entertain a wealth of beliefs in response to out-of-equilibrium messages. By restricting those out-of equilibrium beliefs, one can sometimes eliminate many unintuitive equilibria. We present a number of formal restrictions of this sort, investigate their behavior in specific examples, and relate these restrictions to Kohlberg and Mertens` notion of stability.
3,290 citations