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Optimal Contracting with Endogenous Project Mission
[Properties of Scoring Auctions]

Author

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  • Lea Cassar
  • Jesper Armouti-Hansen
Abstract
Empirical evidence suggests that workers care about the mission of their job, in addition to their wage. This paper studies how organizations can choose a mission to attract, incentivize, and screen their workers. We analyze a model in which a principal offers a contract to an agent for the development of a project and can influence the agent’s marginal return of effort through the choice of project mission. The principal’s and the agents’ mission preferences are misaligned and the agents vary in the intensity of their mission drive. Our main results highlight that how far the organization chooses to move from its preferred mission depends on the contractual environment in which it operates. Missions will be more agent-preferred in environments in which effort is noncontractible. In environments in which agents’ drive is unknown, missions will be less agent-preferred and the organization will find it optimal to offer contract menus that may be implemented via scoring auctions when there are competing agents. Our analysis applies to the design and allocation of aid contracts, research funding, and creative jobs.

Suggested Citation

  • Lea Cassar & Jesper Armouti-Hansen, 2020. "Optimal Contracting with Endogenous Project Mission [Properties of Scoring Auctions]," Journal of the European Economic Association, European Economic Association, vol. 18(5), pages 2647-2676.
    • Handle: RePEc:oup:jeurec:v:18:y:2020:i:5:p:2647-2676.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvz055
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    Cited by:

    1. Armouti-Hansen, Jesper & Cassar, Lea & Deréky, Anna & Engl, Florian, 2024. "Efficiency wages with motivated agents," Games and Economic Behavior, Elsevier, vol. 145(C), pages 66-83.
    2. Harris, Donna & Borcan , Oana & Serra, Danila & Telli, Henry & Schettini, Bruno & Dercon, Stefan, 2024. "Proud to Belong: The Impact of Ethics Training on Police Officers in Ghana," CEPR Discussion Papers 19141, C.E.P.R. Discussion Papers.
    3. Donna Harris & Oana Borcan & Danila Serra & Henry Telli & Bruno Schettini & Stefan Dercon, 2022. "Proud to belong: The impact of ethics training on police officers," CSAE Working Paper Series 2022-05, Centre for the Study of African Economies, University of Oxford.
    4. Koch, Simon & Weinschenk, Philipp, 2021. "Contract design with socially attentive preferences," Games and Economic Behavior, Elsevier, vol. 130(C), pages 591-601.
    5. Josef Falkinger & Michel A. Habib, 2021. "Managerial discretion and shareholder capital at risk," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(7-8), pages 1215-1245, July.
    6. Nadia Burani, 2021. "No mission? No motivation. On hospitals' organizational form and charity care provision," Health Economics, John Wiley & Sons, Ltd., vol. 30(12), pages 3203-3219, December.

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