Purpose,profit and social pressure |
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Affiliation: | 1. Center for Economics, Politics and History, University of Austin, 912 S. Capital of Texas Highway, Austin, TX 78746, USA;2. Department of Economics and Finance, Utah State University, 3565 Old Main Hill, Logan, UT 84322, USA |
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Abstract: | We develop a model in which there are firms and employees who care about profit-sacrificing higher purpose (HP) and those who do not. Firms and employees search for each other in the labor market. Each firm chooses its HP investment. When there is no social pressure on firms to adopt a purpose, HP dissipates agency frictions, lowers wage costs, yet elicits higher employee effort in firms that intrinsically value the purpose. However, social pressure to invest in HP can distort the HP investments of all firms and reduce welfare by making all agents worse off. Applications of these results to banking are discussed. |
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Keywords: | Higher purpose Incentives Labor market matching Organizational performance |
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