Essays on incentive design for motivated agents

Abstract

I develop an overview on the impact of intrinsic motivation on the individu- als’ choice in several economic environments. I start by considering a public good problem in which individuals can be intrinsically motivated. Even if the intrinsic motivation has a positive impact on the levels of public good contributed, it seems difficult to achieve the socially optimal level of contribution. When intrinsic mo- tivations alone are not sufficient to supply the socially optimal level, a principal’s intervention is necessary. The intervention usually takes the form of monetary in- centives. These incentives may conflict with individuals’ intrinsic motivation. I analyze the interaction between intrinsic motivation and monetary incentives in or- der to understand how people respond to incentives. In this sense, this work is related to the literature on psychological incentives in organizations (B´enabou and Tirole, 2003, 2006; Gneezy and Rustichini, 2000a, 2000b). A key prediction of this literature is that motivation is effective in stimulating effort even in the absence of a monetary compensation. This overview is also related to the literature on the self-selection of motivated employees in different sectors (see for instance Besley and Ghatak, 2005, and Prendergast, 2007). This literature suggests that the public sector pays lower incentives to attract motivated employees. This review exam- ines implications regarding the design of optimal incentives and public policy, the selection of motivated agents and its interaction with monetary rewards.I develop a multi-agent model where the individuals are the agents who are asked to contribute to the public good. The individuals may be interested not only in their own utility but also in the well-being of the others. Namely, individuals may or may not be intrinsically motivated. Whether they are motivated or not is their private information. I investigate the possibility of implementing a mecha- nism compatible with individual incentives that simultaneously results in efficient decisions, the voluntary participation of the individuals, and the feasibility of the budget. Under asymmetric information on the individuals’ intrinsic motivation, the principal has to offer different transfers to different agents in order to attain sepa- ration of types. The transfers are made as a function of their degree of motivation. Both individuals will be taxed but motivated individuals pay lower taxes than un- motivated individuals. This is because the principal pays an information rent to motivated individuals in order to elicit higher levels of effort. Monetary incentives are necessary to compensate motivated individuals in order to increase the levels of contribution.I study whether the presence of motivated teachers benefits public and private schools in a competitive environment. The quality is influenced by the effort exerted by the teachers. Teachers’ motivation may have a positive impact on the levels of effort and, then, on the quality. The effect of motivation strictly depends on the degree of differentiation of the programmes offered by the two schools. When both schools offer similar programmes, the Nash equilibrium is the one in which both schools hire motivated teachers. This is because teachers’ motivation plays an important role in the students’ choice between the two school. In contrast, when the two schools offer significantly different programmes, the Nash equilibrium is the one in which both schools hire selfish teachers. The increase in the students’ utility due to the higher quality provided by the motivated teachers is more than offset by the reduction in the profits earned by the two schools. [edited by author]