Screening Workers with Different Ability and Motivation

We study the screening problem of a firm that needs to hire a worker to produce output and that can not observe either the productive ability or the intrinsic motivation of the worker applying for the job. We completely characterize the set of optimal contracts and we show that it is always in the firm’s interest to hire all types of worker, even the worst ones, and to offer different contracts to different types of employees. Interestingly, the smallest distortions arise when motivation is high but not as much as to become more significant than productive ability. Moreover, when motivation is very high, incentives force the firm to offer a strictly positive wage to workers who derive a positive utility from effort exertion and who become paid volunteers. These results prove that very high motivation is not a desirable workers’ characteristic.