Incorporating Morale into a Classical Agency Model: Incentives, Effort, and Organization
نویسنده
چکیده
This paper incorporates morale into a standard principal-agent model. When morale is observable, the agent’s effort level, the optimal piece rate, and the firm’s expected profits are all increasing in the worker’s level of morale. However, when morale is unobservable, workers shirk relative to the full information solution. The paper also considers a model of morale interdependence. The results suggest optimal organization of workers depending on whether workers are paid primarly with incentives or base rates. Additionally, the results have implications for effectively organizing workers during mergers. JEL CLASSIFICATION: D82, J33, L14
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