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124 – Intrinsic Motivation in the Labor Market: Not Too Much, Thank You
We study the screening problem of a firm that needs to hire a worker to produce output and that observes neither the productive ability nor the intrinsic motivation of the worker applying for the job.
We completely characterize the set of optimal contracts and we show that it is always in the firm’s interest to hire all types of worker, even the worst ones, and to offer different contracts to different types of employees.
Interestingly, the highest social welfare attains when motivation is high but not so much as to become more significant than productive ability. Moreover, when motivation is very high, incentives force the firm to offer a strictly positive wage to workers who derive a positive utility from effort exertion and who become paid volunteers. These results prove that very high motivation is not a desirable workers’ characteristic.