Working Paper: CEPR ID: DP15723
Authors: Jesper Armoutihansen; Lea Cassar; Anna Dereky; Florian Engl
Abstract: Many jobs are connected to a social purpose, i.e., they have a positive impact on society beyond profit-maximization. This paper uses a modified principal-agent gift-exchange game with positive externality in the form of a charitable donation (prosocial treatment) to study how workers' prosocial motivation interacts with the use of efficiency wages in stimulating effort. We find that, compared to a standard gift-exchange game (GE treatment), the presence of the externality shifts the agents' effort choice function upwards without affecting its slope. This means that prosocial motivation and efficiency wages are independent in stimulating effort and, thus, that if principals were profit-maximizers, wage offers should be the same in both treatments. However, principals offer higher wages in the prosocial treatment. We show that this is due to principals in the GE treatment highly underestimating agents' reciprocity and thereby offering wages below the profit-maximizing level. The results from robustness-checks further suggest that our findings are unlikely to be driven by a simple efficiency effect; instead they appear to be driven by the presence of the externality, irrespective of the specific third-party benefiting from it.
Keywords: mission; motivation; gift exchange; biased beliefs; efficiency wages
JEL Codes: D23; M52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Social mission (O35) | Agents' optimal effort choice function (D79) |
| Social mission (O35) | Agents' effort levels (D29) |
| Social mission (O35) | Principals' wage offers (J31) |
| Agents' reciprocity in GE treatment (C73) | Principals' wage offers (J31) |
| Positive externality (D62) | Observed effects in mission treatment (C90) |
| Principals' beliefs about agents' effort responses (M54) | Wage offers in GE treatment (J33) |