Optimal Task Design for Intrinsically Motivated Workers with an Incomplete Contract

Abstract

This paper presents analysis of the optimal task design problem for intrinsically motivated workers within a firm with an incomplete contract theory. The authors study the control problem in the context of a search for projects and the interplay between optimal task design and intrinsic motivation. Our model is based on that reported by Bao and Wang (Journal of Economics 107 81-96, 2012), where optimal organization structure is discussed. Bao and Wang (2012) report that, because workers exert maximum effort to discover a project’s information to implement their favorite project, firms invariably choose integration without bargaining. The main result of this paper is the observation that when intrinsic motivation is sufficiently high, the firm might choose separation, in contrast to results reported by Bao and Wang. The higher a worker’s intrinsic motivation is, the higher the probability of choosing the firm management’s favorite project becomes. Consequently, although intrinsic motivation increases the firm’s profit, it decreases the worker’s incentive to exert effort to be informed.