Nonprofits In The Field: An Economic Analysis Of Peer Monitoring And Sabotage

Two types of intrinsically motivated workers are considered: good workers care about the mission of an organization, whereas bad workers derive pleasure from destructive behavior. Compared to the case with only good workers, the mission-oriented sector has to resort to higher monitoring to deal with the threat of sabotage. When standard monitoring is not possible, peer monitoring might deter bad workers from entering the nonprofit sector but reduces output due to free riding and because workers require higher compensation to work in teams. Nonprofits implement peer monitoring only if the expected damage that bad workers can inflict is larger than the loss of productivity due to teamwork. For senior staff with high reservation utility, they turn a blind eye on serious sabotage if the likelihood of hiring a bad worker is perceived as small. But they almost systematically implement peer monitoring for junior staff.