The effect of external incentives on profits and firm-provided incentives strategy

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Abstract

The article examines the firm's choice of incentives when workers face additional incentives ("external incentives") to those provided by the firm, such as building reputation that improves the workers' prospects with other employers, or satisfaction from working well. Surprisingly, the firm might find it optimal to increase the incentives it provides following an increase in external incentives. Even if the firm reduces its incentives, however, total incentives unambiguously increase, leading to higher effort and profits. This implies that firms should try to increase the external incentives that their workers face; I suggest several ways firms can do so.

Original languageEnglish
Pages (from-to)149-156
Number of pages8
JournalJournal of Socio-Economics
Volume37
Issue number1
DOIs
StatePublished - 1 Feb 2008

Keywords

  • External incentives
  • Personnel economics
  • Worker reputation
  • Worker satisfaction

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