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Crowding out effect and sorting in competitive labor markets with motivated workers

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  • Antoni Cunyat Cunyat

    (Universitat de València)

Abstract

We consider a competitive labor market with moral hazard and adverse selection where firms employ teams of two workers. There exist two types of workers: selfish workers and motivated workers. Selfish workers only respond to monetary incentives. Motivated workers not only respond to monetary incentives but their behavior is also driven by intrinsic motivation. However, if a firm chooses an output-based reward system, their intrinsic motivation is undermined. We obtain that self-selection into contracts separating workers based on their motivation is feasible, provided that the crowding out e¿ect is powerful enough. More importantly, all firms have expected positive profits. Our model produces in this case heterogeneity at the firm level.

Suggested Citation

  • Antoni Cunyat Cunyat, 2016. "Crowding out effect and sorting in competitive labor markets with motivated workers," Working Papers. Serie AD 2016-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2016-06
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    References listed on IDEAS

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    Cited by:

    1. Kopel, Michael & Putz, Eva Maria, 2021. "Why socially concerned firms use low-powered managerial incentives: A complementary explanation," Economic Modelling, Elsevier, vol. 94(C), pages 473-482.

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    More about this item

    Keywords

    intrinsic motivation; adverse selection; competition;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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