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Economic Incentives and Social Preferences: A Preference-based Lucas Critique of Public Policy

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  • Samuel Bowles
  • Sandra Polanía Reyes

Abstract

Policies and explicit private incentives designed for self-regarding individuals sometimes are less effective or even counterproductive when they diminish altruism, ethical norms and other social preferences. Evidence from 51 experimental studies indicates that this crowding out effect is pervasive, and that crowding in also occurs. A model in which self-regarding and social preferences may be either substitutes or complements is developed and evidence for the mechanisms underlying this non-additivity feature of preferences is provided. The result is a preference-based analogue to the Lucas Critique restricting feasible implementation to allocations that are supportable given the effect of incentives on preferences.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2734.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2734

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Keywords: public goods; behavioural experiments; social preferences; second best; motivational crowding; explicit incentives;

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    by Nick Krafft in open economics on 2010-07-19 22:02:57
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Cited by:
  1. Bengtsson, Niklas & Engström, Per, 2011. "Control and Efficiency in the Nonprofit Sector Evidence from a Randomized Policy Experiment," Working Paper Series 2011:8, Uppsala University, Department of Economics.
  2. Marianna Belloc & Samuel Bowles, 2010. "International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity," Levine's Working Paper Archive 661465000000000051, David K. Levine.
  3. Bénabou, Roland & Tirole, Jean, 2011. "Laws and Norms," CEPR Discussion Papers 8663, C.E.P.R. Discussion Papers.
  4. Beatrix Brügger & Rafael Lalive & Andreas Steinhauer & Josef Zweimüller, 2011. "The demand for social insurance: does culture matter?," ECON - Working Papers econwp041, Department of Economics - University of Zurich.
  5. Arno Riedl, 2009. "Behavioral and Experimental Economics Can Inform Public Policy: Some Thoughts," CESifo Working Paper Series 2902, CESifo Group Munich.
  6. Marianna Belloc & Samuel Bowles, 2009. "International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity," Working Papers 126, University of Rome La Sapienza, Department of Public Economics.

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