Organisational form and individual motivation: public ownership, privatisation and fat cats

We add potential intrinsic motivation to an agency model that is applied on public ownership and privatisation. Conventional agency theory suggests private ownership to be superior if pay under public ownership is not performance-related, but the ranking is otherwise reversed. However, we predict that motivation crowding out (MCO) can cause performance differences to go either way in both cases. Fat-cat salaries occur if public ownership with intrinsic motivation and a fixed wage is followed by privatisation with MCO, performance-related pay and a lower effort. The analysis also identifies factors that affect the performance of a given type of organisation.