Crowding-out effect and sorting in competitive labour markets with motivated workers

ABSTRACT

This article makes a contribution to the economics literature by inducing proper self-selection into contracts based on workers’ motivation. The novelty of our results is that it points out the alternative potential role of the crowding-out effect to separate workers based on their motivation.

KEYWORDS:

• Intrinsic motivation
• adverse selection
• competition

JEL CLASSIFICATION:

• J33
• D82
• D86

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ See work done by Deci (1971) on a seminal work on this matter.

² Other related research is done by Francois (2007) and Barigozzi and Burani (2016a, 2016b), among others.

³ It is well established in labour economics and social psychology that extrinsic motivators such as monetary incentives can undermine intrinsic motivation. See work done by Frey and Jegen (2002) for a survey on motivation crowding theory.

⁴ We assume that the worker’s outside opportunity utility level is zero. In a competitive environment where workers are in the short side of the market, the outside option is irrelevant.

⁵ In order to ensure a unique solution of the subgame where a worker chooses effort, we assume that workers choose to exert effort in case of indifference.

⁶ With complete information, a firm knows whether the worker is selfish or motivated, whereas with incomplete information a firm is uncertain about the worker’s type.

⁷ With complete information, it is straightforward to check that firms obtain zero profit. Selfish workers are offered the contract , where and and motivated workers are offered the contract , where and .

Additional information

Funding

This research was funded by the Spanish Ministry of Economy, Project ECO2017-87245-R.