Intrinsic motivation, office incentives, and innovation

Yu, Tinghua (2021) Intrinsic motivation, office incentives, and innovation. Working Paper. Birkbeck Centre for Applied Macroeconomics, London, UK.

Abstract

Many organizations, such as government agencies and NGOs, learn about policy effectiveness through decentralized experimentation. However, unobserved effort by an agent can affect the outcome of an experiment, thus limiting its informativeness. A principal can improve the informativeness of an experiment by motivating the agent, using office as an incentive. I develop a model of office incentives in a decentralized experimentation setting where agents are motivated by organizational goals. The principal may keep the agent in office only when the outcome of an experiment is good, thereby creating high-powered office incentives for the agent. High-powered office incentives motivate the agent’s effort in implementing the experiment in order to stay in office. However, they also reduce the agent’s expected informational benefits from experimentation, which can reduce the effort expended by the agent in implementing the experiment. The degree to which the agent values achieving organizational goals affects such trade-offs. I show that the principal is more likely to use high-powered incentives when the agent places a high value on achieving organizational goals and when multiple agents implement the same experiment.

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