Competition and Incentives with Motivated Agents

A unifying theme in the literature on organizations such as public bureaucraciesand private nonprofits is the importance of mission, as opposed to profit, as anorganizational goal. Such mission-oriented organizations are frequently staffed bymotivated agents who subscribe to the mission. This paper studies incentives in suchcontexts and emphasizes the role of matching the mission preferences of principalsand agents in increasing organizational efficiency. Matching economizes on theneed for high-powered incentives. It can also, however, entrench bureaucraticconservatism and resistance to innovations. The framework developed in this paperis applied to school competition, incentives in the public sector and in privatenonprofits, and the interdependence of incentives and productivity between theprivate for-profit sector and the mission-oriented sector through occupationalchoice.[...]