TY - JOUR
T1 - Purpose, profit and social pressure
AU - Song, Fenghua
AU - Thakor, Anjan
AU - Quinn, Robert
N1 - Publisher Copyright:
© 2023 Elsevier Inc.
PY - 2023/7
Y1 - 2023/7
N2 - 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.
AB - 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.
KW - Higher purpose, Incentives, Labor market matching, Organizational performance
UR - https://www.scopus.com/pages/publications/85158854791
U2 - 10.1016/j.jfi.2023.101031
DO - 10.1016/j.jfi.2023.101031
M3 - Article
AN - SCOPUS:85158854791
SN - 1042-9573
VL - 55
JO - Journal of Financial Intermediation
JF - Journal of Financial Intermediation
M1 - 101031
ER -