Intrinsically Motivated Agents in Teams

Abstract

I develop a principal-agent model where a profit-maximizing principal employs two agents to undertake a project. The employees differ in terms of their intrinsic motivation towards the project and this is their private information. I analyze the impact of individual and team incentives on the screening problem of employees with different degrees of motivation within teams. If the principal conditions each agent's wage on his own level of effort (individual incentives), an increase of the rents paid to the motivated agents results in a lower level of effort exerted by all agents in the second-best. In this case, reversal incentives occur. Conversely, reversal incentives do not arise if the principal uses team-incentives. If the principal conditions each agent's wage on the effort of both agents and the agent's performance on the effort of his colleague (team-incentives), motivated agents exert the same level of effort as in the first-best.JEL Codes: D03, D82, M54.