Working Paper Number
D23, D03, M14
This paper considers the leader’s role in forming a culture by choosing the cultural focus and metric when agents have reference-dependent preferences. We find that combining a cultural work metric and external focus maximizes incentives. Principal-leaders favor this type of culture. Under agent-leadership, however, the favored culture critically depends on the relative magnitudes of the agent’s borrowing needs and pledgeable income. If agents’ borrowing needs slightly exceed the pledgeable income, agent-leaders prefer the incentive-maximizing culture. Yet, if agents’ pledgeable income exceeds the borrowing needs, agent-leaders prefer to minimize incentives by emphasizing an external cultural focus and a perk metric.
Keefer, Benjamin, "A Work vs. Perk Model of Leadership and Organizational Culture" (2016). Department of Economics Working Paper Series. 1.