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This paper explores optimal incentive schemes in public health institutions when agents (doctors) are intrinsically motivated. We develop a principal-agent dynamic model with moral hazard in which agents’ intrinsic motivation could be promoted (crowding-in) by combining monetary and non-monetary rewards, but could also be discouraged (crowding-out) when the health manager uses only monetary incentives. We discuss the conditions under which investing in doctors’ motivational capital by the use of well designed nonmonetary rewards is optimal for the health organizations manager. Our results show that such investments will be more efficient than pure monetary incentives in the long run. We will also prove that when doctors are riskaverse, it is profitable for the health manager to invest in motivational capital. The authors would like to thank the Spanish Ministry of Science and Innovation for financial support (Project ECO2009-12836).

This paper explores optimality of contracts and incentives when the principal (public organization) can undertake investments to change agents’ (public workers) identity. In the model, workers within the organization can have different identities. We develop a principal-agent dynamical model with moral hazard, which captures the possibility of affecting this workers’ identity through contracts offered by the firm. In the model, identity is a motivation source which reduces agents’ disutility from effort. We use the term identity to refer to a situation in which the worker shares the organizational objectives and views herself as a part of the organization. Contrary, we use the term conflict to refer to a situation in which workers behave self-interested and frequently in the opposite way of the organisation. We assume that the principal can include investments to foster identity in contracts. Think for instance in developing a single culture that is shared by all the members of an organization. We discuss the conditions under which spending resources in changing workers’ identity and invest in this kind of motivational capital is optimal for organizations. Our results may help to inform public firms’ managers about the optimal design of incentive schemes and policies. For instance, we conclude that investing in motivational capital is the best option in the long run whereas pure monetary incentives works better in the short run. The authors would like to thank the Spanish Ministry of Science and Innovation for financial support of these projects (ECO2009-12836, ECO2012-34202).

This paper explores optimal incentive schemes in public health institutions when agents (doctors) are intrinsically motivated. We develop a principal-agent dynamic model with moral hazard in which agents’ intrinsic motivation could be promoted (crowding-in) by combining monetary and non-monetary rewards. Intrinsic motivation could also be discouraged (crowding-out) when the health manager uses only monetary incentives. We discuss the conditions under which investing in doctors’ motivational capital by the use of well designed nonmonetary rewards is optimal for the health organizations manager. Our results show that such investments will be more efficient than pure monetary incentives in the long run. We will also prove that when doctors are risk-averse, it is profitable for the health manager to invest in motivational capital.

This paper explores the conditions that characterize the optimality for a principal (health manager) to undertake investments to motivate agents (doctors). In the model, doctors are intrinsically motivated and can have different identities. We develop a principal agent dynamical model with moral hazard, which captures the possibility of affecting doctors’ intrinsic motivation and identity through contracts offered by the health manager. Identity and intrinsic motivation of the doctor can be undermined (crowding-out) or enhanced (crowding-in) by incentive policies and monetary rewards. When motivations beyond the money play a role in the agents behaviour, the optimality of the equilibrium outcomes may be altered. Intrinsic motivation is defined as doctor’s experienced enjoyment from doing her work and commit toward a mission. By “full” identity we mean a situation in which the doctor shares the organizational objectives and views herself as a part of the organization. We assume that “full” identity can be achieved when health managers include mission supportive investments in contracts. This also crowds in intrinsic motivation. However, crowding out occurs when the health manager uses only pure monetary rewards to incentivize doctors with the goal of drive their actions in his own interest. Solving the model, we are allowed to make comparative statics and discuss the conditions under which spending resources to invest in motivational capital, is optimal for the health organization’s manager. Our results may help to inform policy-makers about optimal policy design and optimal management of health organizations. For instance, we conclude that investing in motivational capital is more likely to be profitable in the long run whereas mere monetary incentives are more likely to be optimal in the short run. The authors acknowledge financial support from the Spanish Ministry of Science and Innovation (Project ECO2009-12836).

This paper explores optimality of contracts and incentives when the principal (public organisation) can undertake investments to change agents’ (public workers) identity. In the model, workers within the organisation can have different identities. We develop a principal-agent dynamical model with moral hazard, which captures the possibility of affecting this workers’ identity through contracts offered by the firm. In the model, identity is a motivation source which reduces agents’ disutility from effort. We use the term identity to refer to a situation in which the worker shares the organisational objectives and views herself as a part of the organisation. Contrary, we use the term conflict to refer to a situation in which workers behave self-interested and frequently in the opposite way of the organisation. We assume that identity can be achieved when principal include mission-sense developing investments in contracts. By mission we mean a single culture that is shared by all the members of an organization. We discuss the conditions under which spending resources in changing workers’ identity and invest in this kind of motivational capital is optimal for organisations. Our results may help to inform public firms’ managers about the optimal design of incentive schemes and policies. For instance, we conclude that investing in motivational capital is the best option in the long run whereas pure monetary incentives works better in the short run. Thanks to the Spanish Ministry of Science and Innovation for financial support of this project (Project ECO2009-12836).