Working Paper: CEPR ID: DP3185
Authors: Armin Falk; Ernst Fehr
Abstract: During the last two decades economists have made much progress in understanding incentives, contracts and organizations. Yet, they constrained their attention to a very narrow and empirically questionable view of human motivation. The purpose of this Paper is to show that this narrow view of human motivation may severely limit understanding the determinants and effects of incentives. Economists may fail to understand the levels and the changes in behaviour if they neglect motives like the desire to reciprocate or the desire to avoid social disapproval. We show that monetary incentives may backfire and reduce the performance of agents or their compliance with rules. In addition, these motives may generate very powerful incentives themselves.
Keywords: contracts; incentives; intrinsic motivation; reciprocity; social approval; social norms
JEL Codes: C91; D64; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| neglecting non-pecuniary motives like reciprocity (D64) | misunderstandings of how economic incentives affect behavior (D01) |
| perception of employer actions (kind or hostile) (J71) | worker effort levels (cooperation) (J54) |
| introduction of explicit financial penalties (fines) (G18) | reduction in voluntary cooperation (D70) |
| social approval and disapproval (Z13) | behavior (C92) |
| non-pecuniary motives (M52) | effectiveness of economic incentives (M52) |