For-Profit, State, and Nonprofit: How to Cut the Pie Among the Three Sectors

What is the best way to deliver various goods and services in the advanced complex economy? What is the appropriate division of labor among the state, the private for-profit, and the nonprofit sectors? This paper explores these questions relative to the well-being of consumers, and offers a set of broad answers grounded in a benefit-cost analysis that balances (1) the relative value derived by consumers and customers from their relations with organizations from the three sectors, and (2) the relative efficiency of the internal organization of these types of organizations. The paper illustrates this benefit-cost analysis in the context of several industries.Three-Sector Economy, Division of labor among for-profit firms, state, and nonprofit organizations, Organization-consumer interface, Comparative analysis of agency problems, Production of public goods

Measuring Trust: Which Measure Can Be Trusted?

The study examines the relationship of various survey measures of trust and risk taking with trusting behavior in the trust or investment game (Berg, Dickhaut, & McCabe, 1995). We conduct a series of standard trust game experiments from which we derive the standard trust measure – amount sent. We also conduct trust games in which we allow subjects in the role of trustors to make proposals for what they should send and what their counterparts (trustees) should send back, and offer the possibility of asking for costly contracts to support agreements. We use trustors’ request for such contracts as a new operationalization of behavioral trust (not asking for a contract indicates more trusting than asking for one). We compare the two behavioral measures to survey measures of trust and risk preferences. Our results confirm that the amount sent in the trust game is related to common-sense survey measures of trust but not to any measures of risk preferences. In contrast, none of the survey measures predicts asking for a contract. In addition, we investigate the association between risk preferences, gender, personality, cognitive ability and other individual characteristics and trust. We find that male subjects send significantly more than female subjects; risk attitude, the big five personality traits, cognitive ability and other variables show only limited association with the amount sent and asking for a contract. In contrast, survey trust measures are explained well by such variables. JEL classification: C72, C91, D63Trust; Trust game; Measurement

Learning: What and How? An Empirical Study of Adjustments in Workplace Organization Structure

In this paper we seek to understand how firms learn about what adjustments they need to make in their organization structure at the workplace level. We define four organizational systems: traditional (the simplest system), high-performance (the most complex system), decision-making oriented, and financial-incentives oriented (intermediate complexity). We analyze (1) the effects of learning-by-doing on adoption of more or less complex systems, (2) the shape of the performance-experience learning curves associated with different systems, (3) the match between perceived organizational capabilities and the choice of systems, (4) the influence of other firms‘ systems and performance on a firm‘s adjustment decisions, and (5) the effect of a firm‘s location on its decisions. JEL classification: D83, L25, M54Learning-by-doing, Matching, Social learning, Vicarious Learning, Organizational Adjustments, Human Resources

Trust, Communication and Contracts: An Experiment

In the one-shot trust or investment game without opportunities for reputation formation or contracting, economic theory predicts no trusting because there is no incentive for trustworthiness. Under these conditions, theory predicts (a) no effect of pre-play communication, and (b) universal preference for moderate cost binding contracts over interacting without contracts. We introduce the opportunities to engage in pre-play communication and to enter binding or non-binding contracts, and find (a) communication increases trusting and trustworthiness, (b) contracts are largely unnecessary for trusting and trustworthy behaviors and are eschewed by many players, and (c) more trusting leads to higher earnings, and (d) both trustors and trustees favor “fair and efficient” proposals over the more unequal proposals predicted by theory.trust game, trust, trustworthiness, reciprocity, commitment, communication. Comparative analysis of agency problems, Production of public goods

Learning: Does Organization Ownership Matter? Structure and Performance in For-profit, Nonprofit and Local Government Nursing Homes*

We compare the structure and performance of for-profit (FP), nonprofit (NP) and local government (LG) organizations. These organizations differ in their ownership structure, objectives and agency relations. We conjecture that, compared to NP and LG, FP firms (a) delegate less decision-making power to employees, (b) provide more incentives and fewer fringe benefits, (c) monitor less, and (d) rely less on social networks to recruit employees. We also hypothesize that, relative to NP and LG, FP firms (i) are more efficient, (ii) provide similar levels of service elements that observable to their customers, (iii) provide lower levels of less-well observable elements, and (iv) provide less of the relational elements. Differences in structure and performance are likely to be tempered by regulation, market competition and institutional pressures for similarity. We study detailed performance outcomes for all the 369 Minnesota nursing homes included in federal and state datasets, and organization structure for a subsample of 105 homes that responded to our survey. Our empirical investigation generally supports our hypotheses. In particular, we find that FP homes serve more residents than NP and LG, after controlling for quality differences. However, FP homes provide lower quality services on a large array of attributes, especially those that are less observable by nursing home residents and their families. The differences among different types of organization are small, but significant.

Economic and Hypothetical Dictator Game Experiments: Incentive Effects at the Individual Level

The paper compares behavior in economic dictator game experiments played with actual money (amounts given by "dictator" subjects) with behavior in hypothetical dictator game experiments where subjects indicate what they would give, although no money is actually exchanged. The average amounts transferred in the two experiments are remarkably similar. Moreover, we uncover meaningful individual differences in real and hypothetical allocations and demonstrate the importance of two personality traits - agreeableness and extraversion - in reconciling them. We conclude that extraverts are "all talk;" agreeable subjects are "for real."Dictator Game, Incentives, Individual Differences, Personality

Duration of Non-Work Spells in the Workers' Compensation Insurance System: Unionized vs. Non-Unionized Workers

This paper analyzes the effect of unions on the duration of non- work spells of claimants in the workers' compensation insurance system. It has been argued that a union may affect the duration of non-work spells in two ways. First, a union may alter the true level of workplace safety and, in turn, affect both the frequency and severity of work-related injuries ('true safety' effect). Second, a union may influence workers' incentives to file claims or stay in the system for the longer non-work spell ('claims-reporting moral hazard' effect). This study analyzes 9,818 workers' compensation claims filed with the Minnesota Department of Labor and Industry for injuries that occurred in 1993 and 1994 in 873 sample firms included in the Minnesota Human Resource Management Practice (MHRMP) Survey. To correct for the right-censoring data problem, we use a maximum likelihood estimate of duration of nonwork spells using the Weibull distribution. Empirical results show that being a union member is associated with a 19% increase in the duration of non-work spells. This means that, on average, the non-work spells are approximately ten days longer for workers from unionized firms as compared to their non-unionized counterparts in the sample of this study.

Uncertainty and Organization Design

The task environment, characterized by the degree of complexity, variability, and routine of workers’ tasks, creates varying degrees of asymmetric information between workers and their supervisors, as well as poses varying degrees of difficulty for supervisors and workers in making correct decisions. Thus the task environment generates internal uncertainty, some of which is under the control of workers, in contrast with external uncertainty, which arises from the market and is beyond their control. The measures that address problems associated with internal uncertainty (including incentives, delegation of decision-making to workers, monitoring by supervisors and internal labor markets) are elements of organization design. We explore theoretically and empirically the relationship between uncertainty and organization design, expanding on Baker and Jorgensen’s (2003) idea that the risk-incentives relationship depends on the nature and sources of risk and Prendergast’s (2002a) idea that incentive pay is not a direct response to a firm’s task attributes but is part of a broader organization design that includes additional complementary and substitutable elements.