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Charity, incentives, and performance

Journal article
Authors Oege Dijk
Martin HoImén
Published in Journal of Behavioral and Experimental Economics
Volume 66
Pages 119-128
ISSN 2214-8043
Publication year 2017
Published at Centre for Finance
Department of Economics
Pages 119-128
Language en
Keywords Charity, Incomplete contracts, Experiments, corporate social-responsibility, reciprocity, fairness, behavior, Business & Economics
Subject categories Economics and Business


We propose that donating profits to charity may improve firm performance through reduced moral hazard and increased effort in incomplete contract environments. This proposition is tested and confirmed in an incomplete contract principal-agent laboratory experiment where principals' profits are donated to charity. The results show that both principals and agents have higher earnings in treatments where principals are working on behalf of a charity. Only in the charity treatments do agents respond positively to the effort levels suggested by the principals, and do higher requested levels of effort result in higher principal earnings. (C) 2016 Elsevier Inc. All rights reserved.

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