Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets [work in Progress. Comments Welcome.]

Economists understand that mechanisms used by employers to resolve agency problems have surprising and profound consequences; when employers shape personnel policies to motivate workers, these efforts in turn affect organizational structures and such key labor market outcomes as wage inequality and involuntary unemployment. These insights emerge even in models that ascribe simple motives to employees, e.g., that workers seek to earn money with minimal effort. But worker motives are doubtless multifaceted. Human motivation also includes the desire to compare favorably to others, aspirations to contribute to intrinsically worthwhile goals, and inclinations to reciprocate generosity or exact retribution for perceived wrongs. People are driven, in ways that may be opaque even to themselves, by the need to reinforce identity. In this essay we explore the possibility that such behavioral features have important implications for the way we understand agency, and the role of agency plays in labor markets.